Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

BRITISH RAILWAYS (LIVERPOOL STREET STATION) BILL

Order for Third Reading read.

To be read the Third time tomorrow.

COMMERCIAL BANKING COMPANY OF SYDNEY LIMITED (MERGER) BILL [Lords]

Read a Second time, and committed.

Oral Answers to Questions — INDUSTRY

Manufacturing Output

Mr. Dubs: asked the Secretary of State for Industry what are the latest figures for the output of British manufacturing industry; and how this compares with 1979.

The Secretary of State for Industry (Mr. Patrick Jenkin): In the six months to March 1982 manufacturing output stood at 90, taking 1975 as 100, compared with 89·2 for the previous six months. The figure for 1979 as a whole averaged 104·4.

Mr. Dubs: In view of the gloomy figures that the Secretary of State has just given and the depressing economic forecasts, three of which were in the Financial Times this morning, does the Secretary of State hold out any hope for a recovery in British manufacturing output over the next two years?

Mr. Jenkin: Yes, Sir. The consensus of all the major surveys in the country is of a modest increase in output for the rest of 1982, and a further increase in 1983. I stress that, apart from the Liverpool forecast, which stands out on its own, the forecasts do not suggest that it will be substantial. That will be won only when we have recovered much of the competitiveness that we have lost in the past few years.

Mr. Stokes: Does my right hon. Friend agree that the output of British industry could be far higher if there were greater demand for its products in the home market? Does not import penetration still present a grave challenge to our manufacturers, who are becoming, but ought to be, more competitive?

Mr. Jenkin: My hon. Friend is absolutely right. People complain about a lack of demand in the home market for consumer goods, but let them look in the shops and see from where the goods are coming that most people are

buying. There is no lack of demand for goods. The lack of demand is for the products of many British factories—by no means all—because they are not yet as competitive as they could be.

Mr. John Garrett: What does the Minister think about the OECD outlook for July? It points out that output has fallen more in Britain than in any other OECD country during the recession and that there is no prospect of closing the gap between our dismal and their more hopeful economic performance.

Mr. Jenkin: The OECD is taking an unduly pessimistic view of the prospects for the economy. We shall have an opportunity to explore this matter in greater depth on Wednesday, because the Opposition have chosen industry as a Supply day subject. Over the past 12 to 18 months there has been a remarkable advance in industrial productivity. We have achieved a substantial improvement in the rate of increase of unit labour costs, and we have regained a significant part of the competitiveness that we lost in the previous five years, but we have a great deal further to go before we regain all our competitiveness and compete on equal terms with our neighbours.

Several hon. Members: rose—

Mr. Speaker: Order. Answers are very long today. We shall have to do better if we are to have more questions.

Mr. Beaumont-Dark: Does my right hon. Friend agree that manufacturing industry is delicately poised for a recovery that we still hope is to come? That being so, will he urge the Chancellor of the Exchequer, if he is planning to raise extra money to meet the cost of the Falklands campaign, to bear in mind the delicate state of our industry and the fact that it cannot bear any further taxation if it is to survive?

Mr. Jenkin: I am sure that my right hon. and learned Friend the Chancellor of the Exchequer will take careful note of what my hon. Friend has said.

European Regional Development Fund

Mr. Knox: asked the Secretary of State for Industry what is the value of the grants allocated to England from the European regional development fund in 1982.

The Under-Secretary of State for Industry (Mr. John MacGregor): So far this year a total of £50·2 million has been allocated from the quota section of the European regional development fund. I expect further substantial allocations in respect of projects in the English assisted areas in the second half of this year.

Mr. Knox: Does my hon. Friend agree that these grants are playing an increasingly important part in building up the strength of our economy? What steps is he taking to publicise the nature and extent of the assistance to this country from the European regional development fund?

Mr. MacGregor: I agree with my hon. Friend that this is an important element in the way in which Britain benefits from the EEC. Our share of the quota section is at present fixed at nearly 24 per cent., which makes us the second greatest beneficiary. Almost £200 million will he coming to the United Kingdom as a whole this year.
We publicise the grants that come in. It is clear from deputations that I receive that local authorities are well


aware of the advantages of the fund, although they, too, could do more to tell the general public about the assistance that comes from the regional development fund.

Mr. Park: Does the Minister agree that there is no point in publicising the fund in the West Midlands if the Government refuse to recognise the structural defects in industry in that part of Britain?

Mr. MacGregor: Money from the European regional development fund goes to assisted areas throughout Europe. Therefore, it is directed to assisted areas in this country. As the hon. Gentleman knows, we recently discussed the changes in assisted areas following a statement in the House. This matter can be discussed further during the debate on Wednesday.

European Space Agency

Mr. David Atkinson: asked the Secretary of State for Industry what has been the reason for the infrequency of the meetings of the Council of Ministers responsible for the European Space Agency; and when it is proposed that they should next meet.

The Minister for Industry and Information Technology (Mr. Kenneth Baker): There has not been a meeting of the Ministerial Council for some time. However, with the agency's existing package of major programmes running so smoothly, no formal proposals have been put forward for a ministerial meeting.

Mr. Atkinson: In view of the continuing success of the American space shuttle, will the Minister do all that he can at any future meeting to ensure that member States work together within the European Space Agency instead of going it alone with national projects as seems to be the case at present?

Mr. Baker: Broadly, I agree with my hon. Friend's comment. We have done very well out of our membership of the European Space Agency in the past seven or eight years. It has enabled us to create a space industry, and we are now making 10 satellites. We continue to support the programmes of the ESA, particularly the large satellite that we shall be building in 1986 in co-operation with Italy and Canada.

Mr. Wilkinson: I warmly welcome my hon. Friend's endorsement of the importance of the ESA in European space activities. Will he give a commitment on behalf of the Government to support the ESA remote sensing satellite programme, which has great commercial application as well as scientific value?

Mr. Baker: Yes, I certainly give that commitment. We are supporting the ESA programme in earth remote sensing. We are also investigating the possibility of a national programme of our own as this is an area in which the United Kingdom has particular skills.

British Leyland

Mr. Hal Miller: asked the Secretary of State for Industry whether he is satisfied with the progress being made by British Leyland.

The Minister of State, Department of Industry (Mr. Norman Lamont): Yes. As Sir Michael Edwardes said at BL's annual general meeting, the company is on course to achieve the main financial targets set for 1982 in its current corporate plan.

Mr. Miller: Does my hon. Friend agree that, although the reduction of £100 million in the losses of BL's car division last year is to be welcomed, BL's progress towards break-even is threatened by the heavy over-supply of cars on the market, which is estimated as being 30 per cent. in excess of demand? Is it not time to take account of the remarks of the newly elected president of the SMMT and to consider afresh the possibility of relaxing hire purchase restrictions on motor vehicles to bring them into line with those on other goods, to take note of the tariff disparities with Spain and to do something about parallel imports?

Mr. Lamont: My hon. Friend has raised several major problems. We shall certainly take into account the comments of the new president of the SMMT.
With regard to overcapacity in the industry, import penetration is approaching 60 per cent. and car production is at its lowest level for 24 years, so it is not obvious that there is any vast overcapacity in the United Kingdom.
I agree that Spanish imports represent a serious problem. It arises out of the current position of Spain vis-a-vis the Community, and it is being considered in the context of negotiations for Spain's accession to the Community.

Mr. Orme: In view of the figures that the Minister has given and the effect upon the United Kingdom motor industry, is it not time that the Government made a statement about the Nissan investment? Is he aware that there is speculation in the press about a plan B, but that the House has been given no information about this? Is it not time that the Government made a statement about the negotiations?

Mr. Lamont: No, I do not believe that it is. Moreover, I cannot imagine that the right hon. Gentleman thinks that that is a remotely helpful question. We are in negotiation with the Nissan Motor Company, representatives of which will be coming to this country very shortly. It would be both premature and foolish for the Government, in the process of negotiation, to make a statement to the House at this point.

Mr. Richard Page: If the Nissan project does not go ahead, does my hon. Friend regard BL's progress as sufficient to halt the penetration of our home car market by foreign imports?

Mr. Lamont: The rise in imports this year has been disappointing. At the same time, there have been notable advances by BL. In the first quarter of this year BL sales rose by 6 per cent. and BL exports across the board rose by 23 per cent. There have also been some remarkable advances in productivity. We believe that the results achieved by BL are consistent with the targets set for it.

Mr. Dalyell: Following the courteous hearing given to me by the Minister and his senior civil servant, Sir Peter Carey, relating to the dispersal of machinery from Bathgate, will he ask a senior official from the Department to visit Bathgate to see at first hand the industrial calamity that results from the widespread sale of public assets of this kind when machinery goes not only to Marshall of Gainsborough but to other firms at knockdown prices?

Mr. Lamont: I have already written to the hon. Gentleman about the talk that we had. We are well aware of the deep problems caused by redundancies and closures


in his constituency. On the last point, the hon. Gentleman will know that the Public Accounts Committee has been considering this aspect, and a report is expected shortly.

Steel Imports

Mr. Lennox-Boyd: asked the Secretary of State for Industry what effect the United States Government's imposition of duties on the imports of subsidised steel has had on the British steel industry.

Mr. Teddy Taylor: asked the Secretary of State for Industry what effect the United States curbs on imports of steel from the United Kingdom will have on the plans of the steel industry.

Mr. Patrick Jenkin: The effects of the unjustified discrimination against the British Steel Corporation's steel exports to the United States of America are potentially very serious but are not readily quantifiable. We are making intensive representations direct to the United States Administration and are fully supporting European Community initiatives to find an acceptable solution.

Mr. Lennox-Boyd: Bearing in mind the very cheap energy costs—well below world market prices—that have been enjoyed by United States industries for many years, does my right hon. Friend agree that the United States Government's action smacks at least of double standards? Does he further agree, however, that there is a lesson to be learnt from these difficulties about the pitfalls of subsidising any industry that has to operate in an international market?

Mr. Jenkin: My hon. Friend makes a valid point about American energy prices, at least in so far as "old gas" is concerned. With regard to subsidisation, a vast amount of the money that has gone into British Steel has been used to increase investment, to rationalise the industry and to allow the closure of outdated plants and the modernisation of capacity—a process that Mr. Baldrige, the United States Secretary for Commerce, actually praised in his evidence to a Senate Committee.

Mr. Teddy Taylor: Is it reasonable for us to expect the Americans to allow substantial increases in imports of highly subsidised steel when the Common Market imposes rigid controls on imports and insists that they must remain at the traditional levels, which are the levels of 1976? Would it not help the Government's case greatly if we gave an assurance to the world that the British Steel Corporation will not dump steel abroad at prices well below those that our home manufacturers have to pay?

Mr. Jenkin: I dispute the charge that British Steel has been dumping steel in the United States of America. The duties that have been provisionally fixed are countervailing duties based on a calculation of subsidies which neither the British Steel Corporation nor Her Majesty's Government accept. That is precisely what the discussions are about. We are trying to reach a sensible solution. We understand the problems of the American steel industry, but they are due overwhelmingly to the fall in demand for steel in America and only marginally to imports of steel from Europe.

Mr. Roy Hughes: Has the Secretary of State noticed how zealous the Americans are in protecting their industries? Why do we not sometimes take a leaf out of their book, or would such a proposal be vetoed by

Viscount Davignon? Will the Secretary of State also take account of the high productivity figures that are now being recorded by the British Steel Corporation when there is still speculation about major redundancy schemes ahead?

Mr. Jenkin: The hon. Gentleman will no doubt wish to make his first point direct to Mr. Baldrige, which, I am sure, will be well taken.
I have had no proposals from the British Steel Corporation for any further major rationalisation of its production. I am full pf praise and have said many times that the improvements in productivity at the British Steel Corporation's works have been quite outstanding and trust be maintained. I am not sure that I can help the hon. Gentleman any further with regard to the future.

Mr. Wrigglesworth: Does the Secretary of State agree that this illustrates the danger of introducing import controls into any sector of the economy at such substantially high levels? Will he draw to the attention of the American Government the widespread support in the House for the action that he is taking in seeking to oppose the levies that they have introduced? Will he make it clear to them that in the steel areas of Britain enormous sacrifices have been made which have led to the introduction of much higher levels of productivity throughout the British Steel Corporation?

Mr. Jenkin: As I have already said, those developments have been praised by the American Administration and are well known, but I welcome what the hon. Gentleman said about support for our opposition to these undeserved charges.

Mr. Moate: Could not my right hon. Friend express more understanding for the American industry and Government? Surely it is unrealistic to believe that we can go on massively subsidising the public sector steel industry in this country and in other parts of the Common Market without it having a serious adverse affect on our competitors abroad and on the unsubsidised private sector in Britain?

Mr. Jenkin: My hon. Friend is entitled to his view, but I must remind him that I am the Secretary of State for British industry.

Dr. John Cunningham: Is the Secretary of State aware that we much welcome his strong and firm statement about British steel exports to the United States of America, but that he will be judged by the outcome of his actions in that regard rather than by what he said today? Does he agree that the capital reconstruction of the corporation carried through by the Government and the major sacrifices that have been made in closures, rundowns and jobs losses will be rendered useless and worthless if the Americans are successful in the attitude that they are adopting?

Mr. Jenkin: I am grateful to the hon. Gentleman for his support from the Opposition Front Bench. I have no doubt that due note will be taken of it.
The hon. Gentleman exaggerated the potential effect. It is impossible to estimate what the impact will be in the longer term, but a 40 per cent. rate is certainly a dismaying rate of countervailing duty. We are determined to try to reach a solution that is fair both to the European industry and to the American industry. Only on that basis can we hope to move forward.

British Aerospace (Project Development)

Mr. Robert Atkins: asked the Secretary of State for Industry what assistance his Department is giving to projects being developed by British Aerospace.

Mr. Norman Lamont: A number of applications from the company for assistance are being considered. Details must remain commercially confidential. A total of £1·9 million was paid by the Department of Industry in 1981–82 in direct assistance to projects being developed by British Aerospace. In addition, in 1981–82 the Government contributed £63 million to the budget of the European Space Agency, from which British Aerospace received approximately £30 million in contract payments.

Mr. Atkins: Does my hon. Friend recognise the early and urgent requirement for favourable decisions to be taken on the A320 Airbus and also for the Department to contribute to the launch of the P110 project? Does he agree that he is being asked not to cast pearls in front of swine but to give money to companies that have shown themselves to be successful world leaders in the industry in which they perform? Does he further agree that, if he gives them money, he will be doing the same as is done in Japan, the United States, France and West Germany?

Mr. Lamont: I assure my hon. Friend that our approach to the A320 is exactly the same as that of West Germany. We are having talks with British Aerospace about launch aid for the A320, and we shall reach a decision as soon as possible. Information is still awaited from the company.
The P110 is, in the first instance, a matter for the Ministry of Defence, but we are well aware of its strategic importance.

Mr. Geoffrey Robinson: Is the Minister aware that we welcome the full support from the Conservative Benches for two magnificent nationalised industries? Will he give a categoric assurance that Department of Industry support for the Rolls-Royce element within the P110 project will be forthcoming—if there is Department of Industry support for it; I believe that there may be on research and development—and that the vital development and prototype stage will not be held up?

Mr. Lamont: As the hon. Gentleman knows, British Aerospace is now a very successful private sector company and is doing extremely well. With regard to a Rolls-Royce input into the P110, we would look at any application for launch aid on its merits.

Mr. Kenneth Carlisle: Is my hon. Friend certain that the substantial help given to British Aerospace does not give it an unfair advantage over its British competitors?

Mr. Lamont: I do not believe that there are any competitors in the area of the A320 and the P110. As my right hon. Friend has said, we are trying to give support to British industry in an area where Governments throughout the world are giving massive support.

Mr. Orme: Whether privately or publicly owned, is it not a fact that, without the Airbus and the P110, a British airframe company will not survive and will in fact be superseded by foreign competitors in Europe and the United States? Does the Minister therefore agree that urgent action by the Government on this issue is now needed?

Mr. Lamont: Both the Airbus and the P110 are important for the survival of British Aerospace and the maintenance of an airframe building capacity in Britain. Having said that, it is essential that the projects should be commercially viable and profitable. Otherwise, there is no point in the Government giving support.

Automation Systems

Mr. Gwilym Roberts: asked the Secretary of State for Industry what steps he is taking to encourage the introduction of automation systems in United Kingdom industry; and what progress has already been made.

Mr. Kenneth Baker: Under the Department's robotics programme, grants of over £2·6 million have been approved. In June I announced a new £35 million Industry Act scheme to assist the introduction of flexible manufacturing systems. This will supplement £25 million available under the Science and Technology Act 1965 for a continuing programme of related research and development. That is a total of about £60 million. The maximum grant has been raised to one-third to stimulate companies to action this year.

Mr. Roberts: Does the Minister accept that, despite his Department's efforts, progress is lamentably slow? Will he remind his colleagues that major technological investments will take place only when the purchasing power of the public sector and of the economy generally is greatly increased.

Mr. Baker: I do not necessarily agree with the latter point. One can stimulate investment in the manufacturing sector by other means, as the schemes are showing. The robotics scheme and the small engineering firms investment scheme have been a great success. I am sure that the flexible manufacturing scheme—some £60 million—will be equally successful. In fact, we have already had applications for assistance under that scheme.

Mr. Foster: Does the Minister agree that the success of his policies has been so great that the flexibility of manufacturing in the North East has been tremendous? Indeed, companies have almost gone out of existence, so flexible has the manufacturing system become. How much of the money to which he referred has been spent in the North East? Is the Minister aware that the new industries and the magnificent revolution in entrepreneurship promised by the Government have resulted in a loss of jobs, not a gain, in the North of England? Is he further aware that we are in a worse competitive position now than—

Mr. Speaker: Order. That is long enough.

Mr. Baker: I shall write to the hon. Gentleman about support for the North East and give him the figures. The general thesis of his supplementary question was that we should not automate because it led to a loss of jobs. I have refuted that argument from this Dispatch Box on many occasions. The choice for British industry is to automate or to liquidate.

Assisted Areas

Mr. Canavan: asked the Secretary of State for Industry what representations he has received relating to his statement on assisted areas on 28 June.

Mr. Patrick Jenkin: I have received some replies to the letters that were sent to some hon. Members and to the relevant local authorities.

Mr. Canavan: In view of the bitter disappointment in many parts of the country that has been caused by the right hon. Gentleman's announcement, will he say how high the unemployment level in an area must be before there is a grant of special development area status? What possible justification can there be, for example, for refusing special development area status to the Denny employment area in my constituency, where unemployment is running at more than 30 per cent., which is one of the worst in Britain and which is getting even worse because of the insane policies of this Tory Government?

Mr. Jenkin: It has been the policy of successive Governments to fix the areas to be covered by regional aid by reference to travel-to-work areas and not to divide them. The hon. Gentleman's constituency covers three travel-to-work areas. Stirling was made an intermediate area in 1980, and it remains an intermediate area. Falkirk was made a development area, and it remains a development area. Glasgow was made a special development area, and it remains a special development area. I do not think that the hon. Gentleman's constituency has been treated unfairly.

Mr. Richard Page: Does my right hon. Friend agree that if he acceded to every request from hon. Members for assisted area status, virtually the whole country would be an assisted area by their definition and, therefore, there would be no differential advantage to those areas that needed it?

Mr. Jenkin: That was getting on for the position that we found when we came into office. More than 40 per cent. of the working population were covered by assisted area status. At the same time, the differentials in the rates of support for the different categories of area had narrowed to the point where many firms did not regard them as a significant incentive. This Government have concentrated aid on the areas of greatest need, widened the differentials in the rates of grant to the areas and, at the same time, removed the industrial development certificate system as it applied to the rest of the country. That is a sensible regional policy.

Mr. Orme: Can the right hon. Gentleman say what the 1 per cent. increase means in additional expenditure for 1982–83?

Mr. Jenkin: The right hon. Gentleman will know that the programme is not cash limited but demand related. Estimates of the cost will appear in due course when the necessary publications are produced for the House of Commons.

South Yorkshire

Mr. Edwin Wainwright: asked the Secretary of State for Industry how many new jobs have been created in the South Yorkshire area over each of the past three years; and what proposals he has to create more jobs in the immediate future.

Mr. Norman Lamont: Figures are not recorded for the number of new jobs created. The most important contribution the Government can make to job creation is fostering an economic climate in which industry can

thrive. To this end we will continue to work to reduce inflation, to bring interest rates down and to promote competition.

Mr. Wainwright: Does the Minister not realise that no matter what an area is designated, unless more jobs are produced than the number being lost, it is of no value? Is the hon. Gentleman not aware that the economy of South Yorkshire is slowly dying and that industrialists are becoming more and more frustrated because they cannot create jobs and instead are forced to declare redundancies? Is he not aware, further, that the employment rate in the Mexborough and district area in my constituency is running at 20 per cent. plus? When will the Government take steps to reduce the number of unemployed and create more jobs for our people?

Mr. Lamont: I agree with the hon. Gentleman that merely designating an assisted area will not resolve an unemployment problem. It is not possible to resolve it in that way. In Yorkshire and Humberside, no less than 40 per cent. of the area still has assisted area status. Mexborough was updated to a development area in 1979. Thirty-nine projects in South Yorkshire have received regional aid, creating 4,900 jobs. Regional aid will not resolve the problem by itself.

Mr. Hooley: Is the hon. Gentleman aware that the largest segment of population in South Yorkshire is in Sheffield? How many additional jobs will be created by the proposed merger of Johnson Firth Brown and BSC River Don, and why are the unions concerned not being consulted about the merger, which they fear will cause job losses and not job increases?

Mr. Lamont: I cannot comment on the last part of the hon. Gentleman's question, because that is a matter between the companies concerned. Although, regrettably, unemployment in Sheffield is high, it is below the average for intermediate areas as a whole.

Mr. Wainwright: On a point of order, Mr. Speaker. Owing to the unsatisfactory nature of the Minister's replies, I beg to give notice that I shall seek an early opportunity to raise the matter on the Adjournment of the House.

Battery Industry

Mr. Race: asked the Secretary of State for Industry what assurances have been given to his Department by Hanson Trust and Berec Ltd. in respect of the future of the United Kingdom battery industry; and what action he has taken as a result.

Mr. MacGregor: Hanson Trust Ltd. and British Ever Ready Ltd. have given assurances that they will remain committed to the United Kingdom battery industry, to maintaining and improving British Ever Ready Ltd.'s position in the British market, and to developing and expanding in the United Kingdom. In the light of these assurances, and because it meets the conditions stipulated in the Industry Act and the published criteria for the office and service industries scheme, the company's application for assistance towards the cost of transferring its head office and research and development activities from London to the North-East has been approved.

Mr. Race: Given the Hanson Trust's record as a rather nasty asset-stripping company, is it not the case that those


assurances are not worth the paper on which they are written, especially given the closure of the advance projects division of Ever Ready at Abingdon by the Hanson Trust? What action does the Department intend to take to monitor the commitment of the Hanson Trust and British Ever Ready to the future and continuing prosperity of the British battery industry?

Mr. MacGregor: The assurances have been given in a very straightforward manner, and we have investigated them thoroughly. The hon. Gentleman made reference to departmental monitoring. Under the office and service industries scheme, the first instalment of grant is not paid for one year after the first job has been created, and there are substantial checks thereafter, so that grant may be withheld where there is any significant change in the project being assisted or where the number of jobs expected to be created is reduced.

Mr. Chapman: Is my hon. Friend aware that one of the consequences of the Hanson takeover of Berec is that the Berec headquarters is to be moved from my constituency to the North-East? Although in the eyes of a few of my constituents that is to be condemned, it ought to be a matter for commendation by all hon. Members representing constituencies in the North-East. Will my hon. Friend use the good offices of his Department to point out to far-sighted firms that they could do no better than come to excellent working conditions in my constituency, with low rates?

Mr. MacGregor: That was a very skilful supplementary question. There is always a difficult balance in these matters. It was clear in this case that the project would not only benefit the regional economy, in the North-East but would result in benefits to the national economy, because the company made it clear that staying in London and its environs would reduce efficiency, thereby keeping overheads unnecessarily high and leading in the long term possibly to a greater number of redundancies throughout the company. Each of these cases has to be looked at carefully on its merits.

Mr. David Watkins: Is the Minister aware that it is to my constituency that the headquarters is being moved and that there is reputed to be a subsidy of the order of £2 million to Hanson Trust and Berec? Although I accept what the hon. Gentleman said about the assurances that could be given, what assurance can he give that there will be a long-term future for the project at Tanfield Lea?

Mr. MacGregor: It depends how one defines "long-term". It is impossible to give assurances about any industry in a highly competitive business over a very long term. We have clear assurances from the company about its intentions, and I have said already how the grant is payable in step with the steps that the company takes. I know from my visits to Consett that the hon. Gentleman will be delighted that these jobs are coming to an area which needs service jobs very badly.

Mr. Robert C. Brown: When taxpayers' money is involved, surely the Minister is bound to give us a fairly long-term assurance. Can he say when the Berec factory on the Staners trading estate in Newburn in my constituency will start taking on labour again, as it should be doing?

Mr. MacGregor: The latter point that the hon. Gentleman mentioned is a matter for the company. The

hon. Gentleman also referred to taxpayers' money being involved. I have already said what the position is on long-term assurances. It is because taxpayers' money is involved that we look carefully at such applications. This one was scrutinised by the North-East Industrial Development Board. Because taxpayers' money is involved we are reviewing the position where there are substantial job losses in the area from where the offices or research and development facilities will come.

Pulp, Paper and Board Industry

Mr. Proctor: asked the Secretary of State for Industry if he will make a statement on the United Kingdom pulp, paper and board industry.

Mr. MacGregor: I appreciate the difficulties faced by the industry in 1980 and 1981, in the circumstances of world-wide recession. During that time companies have been taking steps to improve their efficiency. These, together with the Government's success in reducing inflation, will help the industry to compete more effectively in the future, especially as important grant-aided investment projects come to fruition this year and next. Companies in the industry remain eligible for a wide range of industrial support measures.

Mr. Proctor: I thank my hon. Friend for that reply, but is he aware that, notwithstanding the Government's help for large energy users, particularly of electricity, the industry, particularly smaller and medium-sized companies that are energy intensive, still has problems? Will my hon. Friend join the federation in the representations that it will make in the near future to his right hon. and hon. Friends in the Department of Energy to try to get further help?

Mr. MacGregor: My hon. Friend knows that energy costs in the industry were discussed in the Adjournment debate on 14 June. My hon. Friend the Under-Secretary of State for Energy explained then how cost disparities have reduced and outlined the action taken to help industry. My hon. Friend will also know that I attended a meeting at the Department of Energy in December to discuss those issues. I should be happy to consider doing so again.

Mr. Maclennan: When do the Government hope to announce the result of their examination of the possibilities of replacing the Wiggins Teape operation at Fort William?

Mr. MacGregor: I would require notice of that question. If the hon. Gentleman would like to table a question, I shall see that it is answered.

Mr. Moate: Does my hon. Friend understand the frustration of the British paper industry, particularly in the South-East, at having to compete with Continental production that is heavily subsidised by the Government, through capital allowances? Is my hon. Friend aware of how much that frustration is intensified when the industry has to compete with other regions where capacity is increased when in the South-East the industry has to close that capacity? Does my hon. Friend agree that the time is now ripe to reconsider the range of grants available to the paper industry, particularly when it has moved into new technology and higher value added products?

Mr. MacGregor: My hon. Friend referred to capital allowances. He will know that they are available to the


United Kingdom industry. With regard to grants, there are a wide range of measures, to which I have referred. My hon. Friend mentioned unfair competition in the United Kingdom. That is an important aspect of regional policy, which also must be taken into account. My hon. Friend also referred to unfair competition in Europe. He will know that cases concerning the Community's Treaty partners are matters for the Commission, but we are ready to raise cases with the Commission when suitable grounds exist, as we have done on several occasions in the recent past.

Merseyside

Mr. Alton: asked the Secretary of State for Industry what new industries have been established on Merseyside in the past three years.

Mr. MacGregor: All sectors of industry have been represented on Merseyside for many years. To that extent no new industries have been established. However, since May 1979 my Department has recorded the opening of over 100 new manufacturing plants, which I think the hon. Gentleman may have in mind, in the Merseyside special development area. The total number of openings is undoubtedly higher. There is also evidence of significant broadening in some sectors.

Mr. Alton: Is the Minister aware that there is great anxiety on Merseyside about the pending decision on the siting of the new Morecambe Bay gasfield service base? When is that decision, which has been postponed since March, likely to be taken? Is the Minister aware that it would be a tremedous boost to the economy of Liverpool if the expected 1,000 jobs were to be situated there as a result of the base being opened?

Mr. MacGregor: I have no details on the hon. Gentleman's point, although I am aware of the concern on Merseyside. However, the hon. Gentleman will know that there are many encouraging signs of new investment by existing companies coming to Merseyside. A substantial battery of Government aid is available. Since the Government came to power about £270 million from my Department has gone to Merseyside in regional development grants and selective financial assistance.

Mr. Lennox-Boyd: Is my hon. Friend aware that many people wish to see one of those bases in their areas? Does he agree that the British Gas Corporation must make a decision in the light of commercial criteria and in the overall national interest?

Mr. MacGregor: That is a matter for the British Gas Corporation and my hon. Friends in other Departments. I shall make sure that my hon. Friend's comments are drawn to their attention.

Mr. Parry: Will the Minister mention the other side of the coin and state how many old industries on Merseyside have closed down over the past three years and how many jobs have been lost? What positive plans do the Government have to reduce the 20 per cent. unemployment rate on Merseyside?

Mr. MacGregor: Of course a number of old industries have gone and jobs have been lost. Merseyside faces the acute problem of restructuring its local economy. It is encouraging that many new plants and the extra

investment are in high technology industries, which will be vital if the economy of Merseyside is to be properly revived.

Motor Car Sales

Sir David Price: asked the Secretary of State for Industry how many new motor cars were sold in the United Kingdom in the first half of 1982; what percentage was of United Kingdom manufacture; and how these figures compare with similar figures for 1981 and 1980, respectively.

Mr. Butcher: The proportion of cars sold in the United Kingdom in the first half of 1982 which were of United Kingdom manufacture was 42·3 per cent. compared with 46·1 per cent. and 42·4 per cent. in the corresponding periods of 1981 and 1980 respectively. I shall publish the full information in the Official Report.

Sir David Price: Can my hon. Friend tell the House how his Department defines a car of United Kingdom manufacture? What percentage of the components must be of British manufacture? Is my hon. Friend aware that a change in the statistical base can entirely alter the results?

Mr. Butcher: My hon. Friend asks a timely question in the light of the debate on the Nissan project. We have put a percentage on the joint venture deal with Honda. I ask my hon. Friend to use that as a rough rule of thumb, although we expect a higher proportion in our domestic manufactures. My hon. Friend's question is timely also because British consumers are about to purchase Y registration cars. I hope that they will consider seriously the implications of what they are doing, particularly as we have a strong and viable domestic manufacturing base today.

Mr. Geoffrey Robinson: Does the Minister agree that the declining share of British made motor cars reflects a declining share of British Leyland cars on the home market, which this year is 2 per cent. down on last year? With reference to the Nissan project, about which the Minister of State was frank with the House, and which, in its original form, was as dead as a dodo, before we get a watered-down version of that, will the Government enter seriously into discussions with British Leyland about the opening of a plant in the Midlands for the expansion of British-based manufacture?

Mr. Butcher: The hon. Gentleman and I share neighbouring constituencies. He will understand that I have some sympathy with his final observation. However, it would be most unwise to make a controversial statement immediately on the Nissan project. As we know, the details of the negotiations with the Department of Industry were agreed to a fairly satisfactory extent. The strategy is a matter for the Nissan company. We shall meet representatives of the company in the Department of Industry towards the end of the month.

Mr. Colvin: Has my hon. Friend asked my right hon. and learned Friend the Chancellor of the Exchequer to consider eliminating the 10 per cent. special car tax to stimulate sales?

Mr. Butcher: A number of ideas are being mooted at the moment which are designed to boost demand for United Kingdom manufactured cars. That is the key question. Any stimulus that comes, which is entirely a


matter for the Chancellor of the Exchequer, must take account of the effect that it might have on imports as well as on domestic manufacturers.

Mr. Campbell-Savours: Will not the British Leyland car market contract if British Leyland is allowed to sell 400 of its 1,600 showrooms? Will the Minister intervene to ensure that the 400 showrooms, if sold, are not taken over by Continental manufacturers who can thereby further reduce British Leyland's car markets?

Mr. Butcher: I suspect that there is a small dose of speculation in the hon. Gentleman's question. Even if there were not, it would still be a matter for Sir Michael Edwardes and his board to decide, although I share the hon. Gentleman's concern that foreign manufacturers may take over such outlets if that hypothetical situation were to arise.

Mr. Donald Stewart: What are the Government doing about British manufacturers who are taking a rake-off of upwards of £1,000 on the same car manufactured on the Continent?

Mr. Butcher: Car price differentials are a matter of great controversy. I suspect that they reflect more the policies of individual car manufacturers than they do the differential fiscal policies of nation States in Europe. The matter is the subject of considerable inquiry by my noble Friend the Secretary of State for Trade, and I shall pass on the right hon. Gentleman's remarks to him.

Mr. Hal Miller: Does my hon. Friend agree that the British Leyland dealers are being pressed on their margins, particularly because of the difficulty of getting rid of used vehicles? Will he therefore consider the need for representations to relax hire purchase restrictions to bring them into line with those pertaining to other goods? Does my hon. Friend agree that reducing a typical payment from £90 to £65 a month would have the effect of widening the market?

Mr. Butcher: I have seen the submission from George Turnbull and the SMMT on this matter. My hon. Friend is absolutely right. To increase demand in that way would release the log jam, particularly on used car sales and, in turn, new car sales. However, this is a matter for my right hon. and learned Friend the Chancellor of the Exchequer. I am sure that he is in no doubt about the strength of the arguments deployed on the lines put forward by my hon. Friend.

Following is the information:


United Kingdom motor vehicle sales



Sales of new cars in the United Kingdom
Percentage of which of UK manufacture


1980 first half
869,168
42·4


1981 first half
797,937
46·1


1982 first half
781,881
42·3

Source:

Society of Motor Manufacturers and Traders.

Oral Answers to Questions — ATTORNEY-GENERAL

Prosecution System

Mr. Canavan: asked the Attorney-General when he last discussed the prosecution system with the Director of Public Prosecutions.

The Attorney-General (Sir Michael Havers): I have regular meetings with the Director of Public Prosecutions when matters relating to the Director's office are discussed.

Mr. Canavan: In view of the Select Committee report on police complaints procedure, will the Attorney-General bear in mind that a Scottish procurator fiscal system, although probably better than the system in England and Wales, falls far short of a fully independent system for dealing with complaints against the police? Does the Attorney-General agree that such complaints would be far better dealt with by a special ombudsman with supporting staff?

The Attorney-General: I have discussed the aspect involving the Director of Public Prosecutions with my right hon. Friend the Home Secretary, but ultimately it is his decision, not mine.

Mr. George Cunningham: As these matters are the responsibility of the Attorney-General, does he agree that there is an increasing number of people in England who believe that the public prosecutor system ought to be established in England, not necessarily precisely on the lines recommended by the Royal Commission, but at least with the ingredient that there is an independent authority for bringing prosecutions separate from the police?

The Attorney-General: I should like to see every police force with its own criminal prosecuting system which, if it disagreed with the chief constable, could go to the Director of Public Prosecutions for a decision. I do not believe that a national prosecuting system is necessarily the right way of going about it.

Mr. Lawrence: Can my right hon. and learned Friend say how soon it will be before all prosecution statements are served upon defendants in cases that come before the magistrates' courts?

The Attorney-General: That matter is still under consideration. I am not able to give my hon. and learned Friend any further information at the moment.

Mr. Pavitt: In his discussions with the Director of Public Prosecutions, is the right hon. and learned Gentleman satisfied about the way in which possible prosecutions of people who issue racist statements that militate against integration of the ethnic minorities are being carried out?

The Attorney-General: I think that the hon. Gentleman if referring to section 5(A), which is the amended section of the Public Order Act 1936. In fact, we have prosecuted in more cases over the past 12 months and have obtained a much higher rate of conviction than previously. We hope that that process will continue.

Parliamentary Questions

Mr. Edward Lyons: asked the Attorney General what proportion of the parliamentary questions to which


he, or the Solicitor-General, have replied in the last six months have related to matters for which the Lord Chancellor is responsible.

The Attorney-General: During the period 1 February to 7 July 1982, 165 questions have been, or will shortly be, answered. Of these, 99 are related to matters for which the Lord Chancellor is responsible.

Mr. Lyons: Does the Attorney-General agree that it is extremely unsatisfactory, not to say bizarre and offensive to the House, that he, uniquely, has to answer to this House for a Department in which he has no responsibility or share in policy formulation? Does he further agree that there should be a Minister in the House from the Lord Chancellor's Department? Alternatively, should not the Attorney-General himself be linked in some way with that Department so that he has responsibility for his answers?

The Attorney-General: It would be impossible for me to be linked with that Department. The House has placed upon me a number of decisions of a quasi-judicial nature which I must take without being influenced by anyone else. This is the first time that I have heard the suggestion that the Lord Chancellor's Department should have a Minister of its own, but I shall consider it.

Mr. Archer: Whatever the future of the Lord Chancellor's Department and the Law Officers' Department, does the Attorney-General agree that there can be no justification for exempting those two Departments, alone among Government Departments, from the scrutiny of a Select Committee of the House? Would it not be perfectly possible to exclude such matters as the appointment of judges, but still subject legal services, law reform, the legal aid system, the Offical Solicitor and the Public Record Office to a perfectly proper Select Committee scrutiny?

The Attorney-General: This is a hardy annual. Speaking for my Department, about 90 per cent. of the decisions I have to take could not be the subject of an investigation by the Select Committee. It might be slightly different so far as my noble Friend the Lord Chancellor is concerned, but the matter is constantly raised and talked about.

Jurors

Mr. Dubs: asked the Attorney-General if he is satisfied with the present workings of the jury system.

The Attorney-General: I am concerned about some evidence recently available of the suborning of jurors and that people who are disqualified under present legislation by reason of their previous convictions from serving on juries have, in fact, been sitting as jurors.

Mr. Dubs: Is the Attorney-General aware of how welcome was his change of mind not to make major changes in the jury system by means of an amendment on Report to the Administration of Justice Bill? If he intends to bring about such major changes, will he present them to the House in such a way that they can be debated properly, preferably being preceded by a White Paper?

The Attorney-General: The change is in the qualification of jurors rather than the jury system as such.

I do not altogether accept what the hon. Gentleman said, because the intended amendment would have been moved on Report and the House would, therefore, have had a chance to debate it. However, as I indicated a moment ago, we decided riot to proceed with it. It is a matter that I want to have in law as soon as the House agrees, because I am worried about the number of people who serve on juries but who should not do so.

Mr. Stokes: Why cannot my right hon. and learned Friend go back to the good old days of the law in England when, in order to become a juror, one had to be a man of substance and maturity?

The Attorney-General: The reason is that the House not only moved away from the property qualifications, but, by an amendment which I believe was moved by one of my hon. and learned Friends, reduced the age from 21 to 18. However, all these matters must be kept under review.

Mr. Arthur Davidson: Will the Attorney-General confirm that, whether composed of men of substance or not, juries continue to reach fair and sensible verdicts, by and large, and that the problem of the corrupt juror is relatively small, a, though disturbing? Will the Attorney-General therefore ensure that any remedy he produces will be limited and do nothing to diminish the respect that the public have for the fairness of the jury system?

The Attorney-General: The problem is not the jurors themselves, but the extent of the attempts made to suborn them. This is an increasing worry and, I regret to say, an increasing worry which we have not fully appreciated in the past. When a juror is approached it has to be reported to the court. Although jurors in practically every case we know of have behaved completely honourably, for reasons that the hon. and learned Gentleman, as a barrister, will appreciate, it is safer to swear in another jury, with all the delay and further expense that is involved.

Sir Charles Fletcher-Cooke: Is there not a case for looking very carefully at the possibility of reverting to the special jury for long-term frauds and other complicated matters of that sort? Would not that be infinitely preferable to the alternative suggestion of having expert assessors?

The Attorney-General: My hon. and learned Friend is correct. The long-term frauds cause great anxiety. I was told last week of a case which is expected to last more than a year. Miss Smith could be a spinster at the time of the swearing-in of the jury and could have to leave the jury, having married and had a baby, before the end of the trial. That is one of the problems we have in keeping a jury together for long periods.

Private Notice Questions

Mr. Speaker: For the past few days it has been the custom of hon. Members to tell the media first that they are applying for permission to ask a Private Notice Question. I might as well make it clear that I deprecate that practice.

Buckingham Palace (Incident)

The Secretary of State for the Home Department (Mr. William Whitelaw): With permission, Mr. Speaker, I should like to make a statement.
I have to report to the House that a man was arrested in Buckingham Palace on Friday morning after entering the bedroom of Her Majesty the Queen. The House will admire the calm way in which Her Majesty responded to what occurred. It will also share my grave concern, and that of the Commissioner of Police of the Metropolis, at this most serious failure in security arrangements. A man appeared in court on Saturday, having been charged in connection with an earlier incident at the Palace. I understand that the facts have been reported to the Director of Public Prosecutions, who is considering the possibility of charges arising out of the latest incident.
In recent years a number of additional security measures have been introduced at Buckingham Palace, but the latest incident shows that the position is still not satisfactory and that more needs to be done. I have, of course, fully discussed the incident with the commissioner, who is operationally responsible for Royal protection matters. On Friday he appointed Assistant Commissioner Dellow to carry out an urgent inquiry into what went wrong and what lessons are to be drawn for the future. Immediate steps were also taken by the commissioner on Friday to strengthening security arrangements at the Palace. Mr. Dellow has today submitted to the commissioner and myself an interim report on this incident; we shall see a further report later this week.
I am determined, as is the commissioner, that the arrangements for safeguarding the security of the Queen should be as comprehensive and effective as possible. The rapid implementation of the measures resulting from his inquiry will require the closest consultation between the Palace authorities and the police, and will be pursued with the utmost urgency.
I shall make a further statement to the House as soon as I can.

Mr. Roy Hattersley: I am sure that the whole House will agree that what the Home Secretary has reported to us today is, to say the least, a wholly extraordinary state of affairs. On behalf of my hon. Friends, I express our relief that the incident ended without harm to Her Majesty.
Will the Home Secretary clarify part of his statement, in the certain knowledge that the security arrangements at Buckingham Palace give us all cause for serious concern? Will he clarify that part of his statement, which is less than precise, involving the first incident? How closely was the first incident, to which his statement refers, related to the occurrence on Friday? Was the same man, as has been rumoured, involved in both incidents? Most important of all—indeed, it is absolutely crucial—will the Home Secretary say what steps were taken to improve Palace security after the first incident; or was it necessary for the Daily Express to enjoy its extraordinary scoop before matters were taken with the seriousness that the situation warranted?
I hope that the Home Secretary will accept from the official Opposition that we welcome the urgent and

immediate inquiry that he has promised. We look forward to the further statement that he has undertaken to make to the House in the hope and belief that it will make it absolutely plain that security at the Palace is being improved in the way that is obviously needed.

Mr. Whitelaw: I am grateful to the right hon. Gentleman. Naturally, everyone will welcome what he has said about the relief that no harm came to Her Majesty.
I am advised that for me to discuss further the details of the latest incident, at a time when there is a possibility of criminal charges being preferred, would be wrong, and that I must not respond to the right hon. Gentleman's question.
Improvements to the security arrangements were made immediately on Friday and in no way awaited the publication of the report in the Daily Express.

Mr. Hattersley: With respect, I press the Home Secretary not on what he calls the latest incident but on what his statement refers to as the previous incident. I have no wish to break the sub judice rule, but I believe that I am entitled to ask, and the House is entitled to be told, whether, after the first incident, attempts were made to improve the security at the Palace.

Mr. Whitelaw: They most certainly were.

Mr. Patrick McNair-Wilson: Will my right hon. Friend agree with me that security is an attitude of mind? Is it true that security duty within the Palace is regarded within the police force as unpopular on account of the boredom, because people believe that electronic devices are carrying out the surveillance, and that the only officers who go in for this duty tend to be either those at the start of their career or those at the end of it who want a quiet life?

Mr. Whitelaw: It is very important for us to consider what Mr. Dellow has to say on the question of the policemen deployed and on the technical arrangements. The incident certainly underlines that, although substantial improvements in physical protection arrangements have been made in the past 18 months, it is crucially important to ensure that the arrangements as a whole are comprehensive and, above everything else, that they are made to work effectively.

Mr. David Steel: The whole House will wish to join the Home Secretary in the admiration he has expressed of the way in which Her Majesty dealt with the incident. While the Home Secretary has, naturally, a desire to respect the wishes of the Royal Family not to be surrounded by too close a personal barrier of security, nevertheless, he must surely have in mind that the security of the buildings that the Royal Family occupy is of the highest importance.

Mr. Whitelaw: Yes, and it is for that very reason that in my statement I said that
The rapid implementation of the measures resulting from his inquiry"—
that is Mr. Dellow's inquiry—
will require the closest consultation between the Palace authorities and the police, and will need to be pursued with the utmost urgency.
It is clear that on this occasion there were technical errors, but it is equally clear that there were human errors, too.

Mr. Kenneth Lewis: Is my right hon. Friend satisfied that there is sufficient use of modern protective technology in safeguarding the Palace?

Mr. Whitelaw: It was thought that there was but, if extra measures are now needed, they will be provided at once.

Mr. Edward Lyons: While there is general relief that the Queen was not harmed by the incident, is not the evil of such an incident that it creates temptation in the minds of others? In those circumstances, should not the Government now consider the security precautions, not only for the Queen but for others, to see whether there are other defects that have grown up within the system over a period?

Mr. Whitelaw: The security arrangements of all other Royal residents are also being reviewed at the present time.

Mr. David Ennals: Is the Home Secretary aware that the British public are shocked and staggered that this event could have occurred, and that his reference to security being not satisfactory must be the under-statement of the year? How could it possibly have happened that a man who had previously been charged with an offence concerning the security at Buckingham Palace was able again to commit a similar offence? It seems incomprehensible.

Mr. Whitelaw: No one is likely to have been more shocked and staggered than I was. We shall have to await Mr. Dellow's report before I can give a further explanation.

Several Hon. Members: rose—

Mr. Speaker: Order. The House will be satisfied if we have two further questions from either side.

Mr. Eldon Griffiths: (Bury St. Edmunds). Although the House will be anxious to see the results of the inquiry, does not my right hon. Friend agree that the remedy is important? Will he assure the House that no technical measure will be excluded from the future safeguarding of the Palace and all other residences of Her Majesty and that that will include thermal intensification devices? Also, will the review deal not merely with Royal residences but with No.10 Downing Street?

Mr. Whitelaw: The security of all the residences is reviewed constantly. No technical measure that is believed necessary would be excluded.

Mr. Geoffrey Robinson: Does the Home Secretary accept that, although he may not

feel it proper to resign, such is the bewilderment throughout the House that whatever remedies are proposed they must in the end mean changes in the management of the personnel security system? May we have an early statement on that?

Mr. Whitelaw: I have promised that when I see the results of Mr. Dellow's inquiry I shall make a further statement to the House.

Sir William Clark: Is my right hon. Friend aware that the shock suffered by the nation was that if the man had been a determined terrorist the result could have been catastrophic? Does he agree that all hon. Members welcome his immediate investigation, because the Queen and the Royal Family should have maximum security protection, especially now that terrorism is rife? When the person comes to trial, I hope that the do-gooders will not say that it was not his fault.

Mr. Whitelaw: As to my hon. Friend's latter point, that will inevitably be a matter for the courts and what he described as the "do-gooders" themselves. It would have been a catastrophe had this been a terrorist incident. It is vital that we provide the maximum possible security for the Royal Family and for all people in vulnerable positions. That is what we shall do.

Mr. Robert C. Brown: Will the Home Secretary reflect on President Reagan's stay at the Palace and the risk to which he was subjected? Can the right hon. Gentleman suggest confidently to a visiting Head of State that he should stay at Buckingham Palace?

Mr. Whitelaw: President Reagan stayed at Windsor Castle, but security must be the same at all the Royal palaces.

Mr. Hattersley: No hon. Member wishes this to become a matter of controversy across the House, but, in view of the bland answer that the Home Secretary gave to my second question, I must press him once again. He told us that security had improved recently. As that improvement resulted in a man entering the Queen's bedroom, how bad was security before the improvement?

Mr. Whitelaw: That must be considered by all Governments over a long period. In the past 18 months, substantial physical protection arrangements have been made. They have undoubtedly improved the position because they were important. There was a review, the results of which have been substantially carried out.

Falkland Islands Review

Mr. Tam Dalyell: rose—

Mr. Speaker: Order. I received notice from the hon. Member for West Lothian (Mr. Dalyell) of an application under Standing Order No. 9. I sent him a letter. Does he wish to pursue his application?

Mr. Dalyell: The subject to which I wish to draw the House's attention under Standing Order No. 9—

Mr. Speaker: Order. In that case, I must tell the hon. Gentleman that this is an abuse of our Standing Order No. 9 procedure. The House decided last Thursday on an inquiry into the circumstances of the Falkland Islands, and to pursue the matter now, in my judgment, is not fair. I have no power to stop the hon. Gentleman, but it is not fair.

Mr. Dalyell: On a point of order, Mr. Speaker. What is sauce for the gander, or a Back-Bench Member, is also sauce for the Government goose, in the sense that, as the House of Commons made certain decisions on Thursday about the Franks Committee, shall we have for the rest of the summer either Downing Street or the Foreign Office, or both, leaking information about those matters against each other?
If I should not move the Adjournment of the House on such matters, does not the same apply to Downing Street sources, as outlined by Mr. Anthony Bevins in The Times, and is it likely that Mr. Adam Raphael of The Observer would have written a detailed front page article about the alleged decisions of the overseas policy and defence committee of the Cabinet, involving Lord Carrington? If I am ruled out of order, should not a decision also be reached on Downing Street and the Foreign Office?

Mr. Speaker: Order. There is a major difference. I have no control over what happens in Downing Street. That is its concern.

Statutory Instruments, &c.

Mr. Speaker: By leave of the House, I put together the Questions on the motions relating to statutory instruments.

Ordered,
That the Housing (Payments for Well Maintained Houses) Order 1982 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Companies (Accounts and Audit) Regulations 1982 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Goodlad.]

WELSH AFFAIRS

Ordered,
That the matters of the Annual Report of the Wales Tourist Board for the year ended 31st March 1982 and Regional Policy in Wales, being matters relating exclusively to Wales, be referred to the Welsh Grand Committee for their consideration.—[Mr. Goodlad.]

WAYS AND MEANS

NATIONAL LOANS FUND

Resolved,
That it is expedient to authorise any increase in the sums payable into the National Loans Fund which is attributable to provisions of any Act of the present Session relating to finance.—[Mr. Goodlad.]

Orders of the Day — Finance Bill

As amended (in the Committee and in the Standing Committee), considered.

Ordered,
That the Finance Bill, as amended, be considered in the following order, namely New Clauses, amendments relating to Clause 1, Schedules 1 and 2, Clauses 2 to 5, Schedules 3 and 5, Clause 6, Schedule 4, Clauses 7 and 8, Schedule 6, Clauses 9 to 25, Schedule 7, Clauses 26 to 43, Schedule 8, Clauses 44 to 48, Schedule 9, Clauses 49 to 57, Schedule 10, Clauses 58 to 65, Schedule 11, Clauses 66 to 80, Schedule 12, Clauses 81 to 84, Schedule 13, Clauses 85 to 122, Schedules 14 and 15, Clauses 123 to 129, Schedule 16, Clauses 130 to 134, Schedule 17, Clauses 135 to 146, Schedule 18, Clauses 147 to 149, Schedule 19, Clause 150, New Schedules, amendments relating to Schedule 20.—[Mr. Bruce-Gardyne.]

Sir William Clark: On a point of order, Mr. Speaker. You have made your provisional selection of amendments, and I do not complain about that. Many of my amendments and new clauses have not been selected. You will recollect that we had a long debate about indexation on the Floor of the House—it was clause 71, to which I moved various amendments. Although I retabled a new clause on indexation, it has not been selected. I understand that that is because it was debated in Committee.
I have also tabled new clause 17. I shall be delighted if it is selected, but I shall understand if it is not. However, I wonder whether you are changing precedent, Mr. Speaker, because amendment No. 57 has been selected for debate. Amendment No. 57 deals with a subject that was debated in Committee on the Floor of the House. I have always understood that if a subject is debated in Committee on the Finance Bill, whether voted upon or not—amendment No. 57 was voted upon—it would not be selected for discussion on Report.
I know that your selection, Mr. Speaker, is headed "provisional". Has there been a mistake and should you have selected new clause 17 instead of amendment No. 57? It is a valid point. We have had one debate on that subject. Should we have another, because that could apply to the entire Finance Bill, as many of us have tabled new amendments that were not debated either here or in Standing Committee?

Mr. J. W. Rooker: Further to the point of order, Mr. Speaker. I wish to support your selection—

Mr. Speaker: Order. I am very grateful, but it is unnecessary. The hon. Member for Croydon, South (Sir W. Clark), who has been a Member for a long time, plays an important part in Finance Bill discussions. He will know that it is common for a matter of major concern that has been debated in Committee to be debated again on Report. I am not saying that everything that has been debated in Committee is called. That does not happen. I have often said that Report stage is not a repetition of the Committee Stage. However, there is a difference in the wording of amendment No. 57. I think that the date is different for one thing. A considerable number of names have been added to it since the Committee debate. I am

not seeking to give reasons why I have selected it. I am merely giving that additional information to the hon. Gentleman.

Sir William Clark: Further to the point of order, Mr. Speaker. I well understand what you say. New clause 17 is differently worded from the amendment that I put down to clause 71. You have mentioned the matter of importance. Amendment No. 57 is a matter of importance. Many hon. Members have signed the amendment. If I had been so minded, I could have persuaded many of my hon. Friends to sign the amendment. I do not think that one plays the game that way. I accept your ruling. I feel, however, that when something has been debated and voted upon, it is unfair that other hon. Members whose amendments have not been called, either here or upstairs, should be squeezed out.

Mr. Speaker: It is common for hon. Members whose amendments are not called to feel frustrated. It is not often, however, that I receive an application from anyone to withdraw an amendment that I have selected. That is exceptional. I take note of that interesting point.

Mr. Peter Shore: On a separate point of order, Mr. Speaker. While it is normal for matters of major importance which have been discussed earlier to be brought back in the proper form on Report, can you say whether it is normal, or indeed proper, practice for the Government to table no fewer than five new clauses, two schedules and a shower of starred amendments late on a Thursday before the Report stage the following Monday? Is this not either a sign of gross incompetence and mismanagement in the Treasury or an abuse of the House?

Mr. Speaker: It is not for me to comment on the way in which the Government conduct their business.

New Clause 1

ADDITIONAL POWER OF TREASURY TO BORROW

'(1) At the beginning of subsection (1) of section 12 of the National Loans Act 1968 (power of Treasury to borrow) there shall be inserted the words "Any money which the Treasury consider it expedient to raise for the purpose of promoting sound monetary conditions in the United Kingdom and".

(2) After the said subsection (1) there shall be inserted the following subsection:
(1A) The terms (as to interest or otherwise) on which any balance for the time being in the National Loans Fund is to be held shall be such as may be agreed between the Treasury and the Bank of England.

(3) In section 19(4) of the National Loans Act 1968 (meaning of liabilities and assets of the Fund) after the words "the assets of that Fund shall be" there shall be inserted the words "the aggregate of any balance in that Fund and".'.—[Mr. Bruce-Gardyne.]

Brought up, and read the First time.

The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne): I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to discuss new clause 2—

Variable rates of interest for government lending.

'(1) For section 5 of the National Loans Act 1968 (rates of interest) there shall be substituted the following section:—

5.—(1) This section has effect as respects any rate of interest—

(a) which under any provision in Schedule 1 to this Act is to be determined in accordance with this Act, or
(b) which is to be determined by the Treasury under section 3 of this Act,



and, where any enactment passed after this Act provides for the payment of interest on advances or loans made out of the National Loans Fund, and for the rate at which that interest is to be payable to be determined or approved by the Treasury, then, except as otherwise expressly provided, this section has effect as respects that rate of interest.

(2) For any loan or class of loans the Treasury may determine or approve either—

(a) a fixed rate of interest, that is to say a specified rate or a formula rate which is to be applied, throughout the period of the loan or any loan of that class, with the value which it has when the loan is made, or
(b) a variable rate of interest, that is to say a formula rate which is to be applied, for each of the successive periods of the loan or any loan of that class which are of a length specified in the determination or approval (in this section referred to as interest periods), with the value which it has at the beginning of that period;

and in this subsection "formula rate" means a rate which is so expressed (whether by means of a formula or otherwise) that it will or may have different values at different times.

(3) The Treasury shall, on each occasion when they determine or approve a fixed rate of interest for a loan or class of loans, satisfy themselves that the rate would be at least sufficient to prevent a loss if—

(a) the loan, or any loan of that class,—

(i) were made forthwith, and
(ii) were met out of money borrowed by the Treasury at the lowest rate at which the Treasury are for the time being able to borrow money (of whatever amount) for a comparable period, and on other comparable terms, and

(b) the interest on the money so borrowed, together with the Treasury's expenses of borrowing, were set off against the interest received on the loan.

(4) The Treasury shall, on each occasion when they determine or approve a variable rate of interest for a loan or class of loans, satisfy themselves that the rate would be at least sufficient to prevent a loss if—

(a) the loan, or any loan of that class,—

(i) were made forthwith,
(ii) were to be repaid at the end of its first interest period, and
(iii) were met out of money borrowed by the Treasury at the lowest rate at which the Treasury are for the time being able to borrow money (of whatever amount) for a comparable period, and

(b) the interest on the money so borrowed were set off against the interest received on the loan.

(5) If at any time the Treasury are satisfied that a rate of interest determined or approved for a class of loans, or for a loan not yet made, would not meet the requirements of subsection (3) or, as the case may be, subsection (4) above if it were determined or approved at that time, that determination or approval shall be withdrawn; and another rate shall be determined or approved in accordance with that subsection for further loans of that class or, as the case may be, for that loan.

(6) The Treasury may in determining or approving a rate of interest take into account any consideration justifying a rate higher than that required by subsection (3) or (4) above.

(7) Different fixed rates of interest may be determined or approved in respect of loans which are to be made for the same length of time; and different variable rates of interest may be determined or approved for loans which are to have interest periods of the same length.

(8) The Treasury shall cause—

(a) all rates of interest determined from time to time by them in respect of local loans, and
(b) all other rates of interest determined from time to time by them otherwise than by virtue of subsection (6) above,

to be published in the London and Edinburgh Gazettes as soon as may be after the determination of those rates."

(2) The enactments amended by Schedule 1 to that Act (government lending and advances) shall have effect as if in the third column of that Schedule for the word "fixed", wherever it occurs, there were substituted the word "determined".

(3) In subsection (9) of section 47 of the Housing (Financial Provisions) Act 1958 (loans for certain housing purposes) for the word "prescribed" there shall be substituted the word "determined".

(4) In subsection (5) of section 20 of the Crown Agents Act 1979 (grants and loans by Minister) for the words "section 5(2) of the National Loans Act 1968 (criteria for fixing" there shall be substituted the words "section 5(3) and (4) of the National Loans Act 1968 (criteria for determining".

Mr. Bruce-Gardyne: The new clauses, and particularly new clause 1, are important. The background to them was explained in a press notice which was issued at the time of a reply by my right hon. and leaned Friend the Chancellor of the Exchequer to my hon. Friend the Member for Kensington (Sir B. Rhys Willaims) on 25 June. A copy of the press notice was placed in the Library. The background was further discussed in the latest issue of the Bank of England Quarterly Bulletin. I shall not attempt to go into all the complexities, but if hon. Members have queries I shall do my best to answer them when replying to the debate.
The essential purpose of monetary policy is to reconcile the twin objectives of abating inflation and securing the greatest possible moderation of interest rates consistent with the abatement of inflation. That task has been rendered more complex by the way in which very high levels of inflation and accompanying high nominal interest rates, experienced throughout the 1970s, led to the virtual atrophying of the corporate debenture market and a consequent growth in the dependence of the corporate sector on bank finance. This, in turn, inevitably compounded the problems of ensuring that the growth of the monetary aggregates did not generate additional infllationary pressures.
The new clauses are designed essentially to remove two rather artificial obstacles to the management of the monetary policy. I shall refer first to new clause 2. The National Loans Act 1968 was drawn up at a time when variable rate borrowing was hardly in its infancy. As a result, no provision was included in the Act to enable the National Loans Fund to engage in such lending to the local authorities or to anyone else. Today, as the House will be aware, variable rate funding is commonplace. But since the facility has not been available from the National Loans Fund local authorities have been obliged to turn to the banking system. As a result, the local authorities are now borrowing more than £10,000 million from the banks. Most of this is in the form of variable rate finance. The local authorities have themselves been anxious to have access to such a facility from the Public Works Loan Board.
Because of the ability of the Treasury to borrow on generally finer terms than local authorities, the provision of such a variable rate facility should enable the NLF to on-lend to the local authorities on very competitive terms for variable rate loans, while at the same time observing its statutory obligation to ensure that such on-lending does not involve any element of subsidy. It is calculated that this should produce a saving to the local authorities and hence to the public sector borrowing requirement of perhaps £20 million a year. Furthermore, by helping to move local authority borrowing away from the banking system, it should facilitate our task in controlling the growth of monetary aggregates.
As the House was informed last October, we were able to arrange a small amount of variable rate finance from the NLF for the nationalised industries within the restraints of the 1968 Act, but this had to be arranged to conform with the Act according to a formula by which the rate of interest has to be re-determined by the Treasury every three months. Such an arrangement is not appropriate to the much larger volume of business that we hope to attract from the local authorities.
New clause 2 will take the place of section 5 of the 1968 Act. It requires the formula for interest on variable rate loans to be tested against the cost of Treasury borrowing during the initial period of the loans to ensure that the cost of lending will be above the cost of borrowing by the NLF. In practice, the formula for variable rate loans will probably be a margin above the London inter-bank offer rate. Experience shows that on this basis the Government will not be on-lending at interest rates below market rates as they are forbidden to do under the terms of the National Loans Act.
It is important that Government lending can be offered on terms competitive with those offered by the banking sector. In the highly sophisticated conditions of modern financial markets, this means not only competitive rates but competitive types of instrument. New clause 2 will permit this and increase considerably the attractiveness of borrowing from the Government. In particular, the Public Works Loan Board will be able to respond to requests from local authorities and make variable rate loans to them on a substantial scale. This should result in an appreciable saving in interest costs for borrowers and the public sector as a whole. It should also mean a useful reduction in bank lending to public bodies that has built up considerably in recent years. The effect will be to raise the Government borrowing requirement but not the public sector borrowing requirement. For a given level of funding it will reduce the level of any balance in the National Loans Fund and of any money market shortages.
That leads logically to new clause 1.

Mr. Robert Sheldon: Before the Economic Secretary goes on to new clause 1, could he say how much he expects monetary aggregates to be reduced as a result of new clause 2?

Mr. Bruce-Gardyne: Of course I cannot say that. I cannot predict, as the right hon. Gentleman knows, the scale at which local authorities will take advantage of this opportunity. Even if I could, I could not predict the precise implications of that for the growth of monetary aggregates. The answer to that must be, as the right hon. Gentleman will know, a lemon.

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Mr. John Horam: The hon. Gentleman said that he expected that local authorities would save about £20 million as a result of the borrowing that they will in future make from the National Loans Fund which at the moment they are borrowing from the banks. Therefore, the Government must have made some estimate of the proportion of the £10,000 million that is currently borrowed by the local authorities from the banks and which will now be shifted over to the National Loans Fund; otherwise the Government would not have worked out the £20 million.

Mr. Bruce-Gardyne: The £20 million is a rough calculation based on assumptions. We do not know precisely how much of the £10,000 million that the local authorities are currently borrowing—

Mr. Horam: What about the £20 million?

Mr. Bruce-Gardyne: As I said, the £20 million is not much more than a guesstimate. We do not pretend that it is more than that. It is an idea of the order of magnitudes that might prevail if a substantial proportion of the borrowing that local authorities currently make on variable rate terms from the banks were now to be shifted to the National Loans Fund. I cannot give the hon. Gentleman further orders of magnitude than that.

Mr. Douglas Jay: Surely the Minister is further puzzling the House on an already puzzling subject. A few minutes ago he said, as I thought, that there would be a saving of £20 million on the interest expenditure of local authorities. To make that estimate, he must have estimated what the figure would be by which local authorities took advantage of this new facility. Now he is telling us that it was guesswork. Is he not confusing us still further? Was it guesswork, or was it a rational estimate?

Mr. Bruce-Gardyne: I said that it was calculated that this might produce a saving to the local authorities, and hence to the PSBR, of perhaps £20 million a year. I should not go on oath as to that figure, because we are not in a position to dictate to the local authorities whether they switch, for variable rate finance, from the banking sector to the PWLB. That would be their decision. All that I can tell the House is that they have said that they wish to have access to this facility, and we hope that they will use it on a substantial scale. It would be wrong for me to say anything more precise.

Mr. Robert Sheldon: The hon. Gentleman said that the main purpose of new clause 2 is to reduce the increase in monetary aggregates, and that this would save a useful £20 million. As the hon. Gentleman made it clear that the monetary aggregates were the prime reason for the new clause, that must have been the figure that he chose at the beginning, and the £20 million was derived from that. Any calculation would proceed in that way. The hon. Gentleman is not coming clean with the House in the way that he should.

Mr. Bruce-Gardyne: I am not trying to keep anything from the House. However, the scale on which this facility will be used cannot be predicted, and is not in our hands. We believe—this I readily concede to the right hon. Gentleman—that the extent to which local authorities switch their variable rate borrowing from the banking sector to the NLF will reduce the rate of growth of bank lending and thereby assist us in the business of controlling the growth of the monetary aggregates and particularly the broad aggregates. That is one of the purposes that we have in mind.

Mr. Joel Barnett: Whichever way and however much local authorities change their borrowing, and however much the monetary aggregates are affected, I hope that the hon. Gentleman will explain to the House—in trying to convince us to accept the clause—what effect this will have in the real world.

Mr. Bruce-Gardyne: I do not think that I can give the House any greater detail than I have already on the precise


sums that might transfer from one form of borrowing to another. As I have already said, this is not in the Government's hands. We are not in a position to dictate to the local authorities precisely how they borrow on variable rate terms. Therefore, the volumes are not in our hands. I readily concede to the right hon. Gentleman that one of our primary purposes in making this change is to reduce the scale of dependence of local authorities on bank finance, because we believe that this will contribute to the resolution of the problems that previous Governments have faced with the rate of growth in bank lending. That is an element in our thinking that ties in, as I was about to explain, with what we are proposing to do in new clause 1.
New clause 1 is designed to eliminate an artifical restraint on our ability to vary our funding in response to changing market conditions, and in some circumstances our ability to intervene in the foreign exchange market.

Mr. Barnett: Read that again.

Mr. Bruce-Gardyne: I did not hear that comment, which is probably just as well.
For many years now the Bank of England's operations in the gilt-edged market have been designed, in the words of the Committee presided over by the right hon. Member for Huyton (Sir H. Wilson),
to implement monetary policy by funding the Government's borrowing in non-monetary form, so controlling the money supply and influencing interest rates.
Sometimes—depending on such factors as the buoyancy of bank lending—we need to make debt sales to the non-bank public greater than the PSBR,and sometimes we need to make them less. When we need to make large debt sales to offset the build-up of liquidity in the banking system, the National Loans Fund is liable to accumulate balances in a way that section 12 of the National Loans Act does not permit.
At present section 12 of the National Loans Act allows the Treasury to borrow to meet the outgoings of the NLF—which means basically the central Government borrowing requirement, rather than the PSBR, plus whatever sterling the exchange equalisation account needs—plus enough to meet any necessary working balances. It has over recent years been possible for sales of long-term debt to exceed the outgoings of the NLF as the excess could be used to repay the so-called floating debt, that is, Treasury bills held by the banks and ways and means advances lent by the Bank of England.
However, we are now close to the point where there is little room for this floating debt to be further reduced, so that if issues of long-term debt exceed the outgoings of the NLF the NLF would accumulate balances rather than repay debt. It would thus be in the position of a man who pays off his overdraft and moves from the red into the black. However, the Act at present does not allow this to happen, other than on a minor and temporary scale.
When the constraint imposed by section 12 of the Act, which has no coherent relationship with monetary policy, is reached, the Government of the day would be unable to vary debt sales to influence monetary conditions, with adverse consequences for the conduct of monetary policy. For example, it could leave the Government unable to contain the growth of liquidity in the economy which a rapid growth of bank lending would otherwise produce. It

could also, in certain circumstances, make it impossible for the EEA to undertake intervention to smooth a fall in the exchange rate. It is quite inappropriate that a section in the National Loans Act should impose such an incidental limitation on our freedom of action in this connection.

Mr. Terence Higgins: My hon. Friend says that at some point we shall reach the stage at which one runs up against the limit at present imposed by the legislation. Will he say, first, whether we have yet reached that point, or is it impending? Secondly, is not his analogy with an overdraft going black or red somewhat inappropriate, since what the Government are doing in funding in the first place is borrowing, thereby going into the red. My hon. Friend is saying that we are not in a position to pay off different debts. Either way, the Government are still in the red. We have not abolished the national debt.

Mr. Bruce-Gardyne: I concede that we are not at the point at which we can abolish the national debt. I wish that we were. That is something that we are not likely to see in our lifetime. It is true that we are talking about Government borrowing, but the consequence of borrowing under the National Loans Act, under certain circumstances, is a build-up of positive balances, and that is what section 12 of the Act forbids.
In answer to my right hon. Friend's question about whether we have overshot the margin, as I understand it, the answer is "No", although there is a risk that we could do so. That is not a risk that we should fairly take, in conformity with section 12 of the Act. It is equally inappropriate for our actions, whether in the funding of the public sector borrowing requirement or potentially in exchange market intervention, to be inhibited by that limit. That is why we are asking the House to agree to this new clause.

Mr. Shore: I wish to take up the hon. Gentleman's point within his main argument about the exchange equalisation account. The National Loans Fund has existed since 1968. The exchange equalisation fund has come under changing fortunes and circumstances during those 14 years. Can the Minister point to a single occasion on which successive Governments have felt inhibited from operating into and through the exchange equalisation account by the existence of section 12 of the National Loans Act?

Mr. Bruce-Gardyne: I have just explained to my right hon. Friend the Member for Worthing (Mr. Higgins) that, to date, we have not been inhibited by that rule, but we easily could be inhibited in the future. There could easily be circumstances in which we could not at the same time continue our funding operations and intervene through the exchange equalisation account to smooth a fall in the exchange rate. We should have to choose between the two. Essentially, that seems unwise, for reasons which have nothing to do with monetary policy or exchange rate management.
It is essential, therefore, to amend the National Loans Act to allow borrowing to take place to promote sound monetary conditions, even though such borrowing could cause balances to be accumulated in the National Loans Fund. Such balances, which will earn interest, would accumulate in the banking department of the Bank of


England, where they would be available to relieve money market shortages. I cannot tell the House the scale on which balances to be permitted under new clause 1 will—if the House approves—be accumulated, for that will depend on a variety of factors including the level of bank lending and the extent and direction of foreign exchange intervention.

Dr. Jeremy Bray: Will the Minister explain in simple terms why the Government should want to borrow more than they are spending, and why, to enable the private sector to lend to the Government, they should pay back debt to the private sector?

Mr. Bruce-Gardyne: First, we are not paying back debt to the private sector under the new clause. The need to fund at times on a larger scale than the public sector borrowing requirement reflects the need to neutralise the consequence of a rapid growth in bank lending and the implications that that may have for the growth of the broad money aggregates. [HON. MEMBERS: "Here we go again."] When the Labour Government were in office they rightly took pride in the primacy that they gave to the observance of a responsible monetary policy. So I see no reason why hon. Gentlemen should regard that as a matter of hilarity. It shows an extremely frivolous attitude to the nation's accounts.

Dr. Bray: Will the Minister explain why the public sector is not only repaying debt but now lending money by the purchase of commercial bills so that the private sector can lend it back to the Government?

Mr. Bruce-Gardyne: The borrowing which the Bank of England must do to manage the money markets reflects the need at certain times to ensure that the broad money aggregates do not grow in a manner which all experience shows is liable to lead to future inflation. Furthermore, unless we are in a position, for example, in the tax-gathering season, to offer assistance to the market, there would be a rise in short-term interest rates which would not be indicated by the performance of the monetary aggregates and which could have untoward effects on the exchange rate. That is why we want to eliminate what is essentially an artificial restraint on our freedom of manoeuvre in section 12 of the National Loans Act.
We hope that use by the local authorities and nationalised industries of the new facility which we are proposing to create in new clause 2—this is where the two clauses fit together—and the assistance which the guidance which my right hon. Friend gave on 25 June regarding the tax treatment of deep discount and zero rate corporate borrowing to the revival of the corporate bond market will reduce the scale of banking intermediation. To the extent that that occurs, the need to build balances with the National Loans Fund to control the growth of the monetary aggregates will be reduced. However, in the end the revival of corporate funding through the market will depend overwhelmingly on a return to much lower levels of inflation than those we suffered in the 1970s, and the much lower nominal interest rates which would logically accompany that evolution.
That is our purpose, and we are on course to achieve it. These two new clauses will, I believe, eliminate two artificial obstacles in our path, and it is on that basis that I commend them to the House.

Mr. Shore: Ever since new clause 1 and its companion, new clause 2, appeared on the Order Paper on Friday 25 June, I have anticipated with relish the arguments that would be advanced in their support and which Treasury Minister would be entrusted with the burden of explanation. My view was, and is, that the Chancellor or the Chief Secretary was the obvious person to present the new clauses since they have a major impact on the monetarist strategy that the Chancellor has pursued since the last general election. That he has passed the responsibility to the youngest, brashest and least disciplined member of the Treasury team, does not reduce the importance of the issues, but shows the acute embarrassment that the Chancellor rightly expects is involved in the exposition of their content.
The Economic Secretary did not enjoy his finest hour in explaining the new clauses. He added only a little to our understanding of them. He devoted himself to a technical presentation—which is part of his task—but he had little to say about the larger context of monetary policy in which the clauses must be discussed and set. What he did say was unconvincing.
The hon. Gentleman said that the basic purpose was to remove an artificial restraint on the Government's power to borrow. That is one way to describe the proposal, but we have come to a major conflict with two major components of the Government's monetarist policy. The effort to reduce sterling M3 and the other money supply indicators is in total conflict with the other objective of reducing the public sector borrowing requirement and public sector borrowing. The conflict between those two objectives dominates the debate. It has led the Treasury Minister into the difficulties of exposition which we witnessed in the last half hour.
The purpose of the new clauses is plain. Section 12 of the National Loans Act 1968 limits the Treasury's power to borrow, but only in so far as the borrowing is for the purpose of meeting
any excess of payments out of the National Loans Fund over receipts into the National Loans Fund",
and for the exchange equalisation purposes to which the Minister referred. In short, the Treasury can borrow under the present law without any preconceived limits, but the borrowing must be related to the borrowing requirement.
New clause 1 permits the Treasury to borrow in furtherance of a purpose separate from the funding of the borrowing requirement. In the words of new clause 1, that purpose is
promoting sound monetary conditions in the United Kingdom".
That takes us a long way from the present limitations of section 12 of the 1968 Act. It permits the Treasury to borrow beyond the needs of the borrowing requirement and thus to accumulate a surplus in the National Loans Fund well beyond whatever margin is allowed for working balances. That becomes plain in the last part of new clause 1 where section 19(4) of the 1968 Act is further amended so that specific reference is made to
the aggregate of any balance in that Fund.
New clause 2 also amends the 1968 Act. It withdraws section 5 of the Act, which deals with the rate of interest on Government stocks, in favour of a new clause 5 which enables the Treasury not only to determine fixed rates of interest in respect of loans as they have previously done, but to determine variable rates of interest. The Economic Secretary is probably correct in what he says, but he does not know how much it will be used. He hopes that it will


meet a requirement by local authorities, which are limited to borrowing from the Public Works Loan Board at fixed interest rates, to borrow in future from the National Loans Fund at variable rates of interest. That is not particularly controversial, but if new clause 2 is used it will increase the public sector borrowing requirement.

Mr. Bruce-Gardyne: The right hon. Gentleman is wrong. The borrowing by local authorities, whether from the banking system or from the PWLB, is part of the PSBR. As I conceded, the central Government borrowing requirement will be increased, not the PSBR.

Mr. Shore: I see. It is possible that we are talking about thousands of millions of pounds that the local authorities are borrowing from the banks. If the total is shifted to make use of the new facility, is the Minister asserting that it will make no difference to the PSBR and will affect only the CGBR?

Mr. Bruce-Gardyne: Yes.

Mr. Shore: I accept that, but it does not alter the general thrust of my remarks, which basically are about new clause 1. If the Economic Secretary had conceded my argument on new clause 2, he would have enormously reinforced the point that I shall now develop. I wish to discuss the wider meaning of new clause 1.

Mr. Bruce-Gardyne: I wish to be sure that there is no misunderstanding. The borrowing by local authorities, whether through the banking sector of the PWLB, is bound to count towards the PSBR. I can assure the right hon. Gentleman that the acceptance of new clause 2 and any changes that may follow from it do not affect the PSBR. They affect the central Government borrowing requirement.

Mr. Shore: As a consequence, will the shift from the banks to the National Loans Fund help to reduce sterling M3 money supply?

Mr. Bruce-Gardyne: Yes.

Mr. Shore: So much for the technical changes. We can be forgiven if we rub our eyes in amazement at new clause 1. The Government are legislating for new powers to permit them to borrow not less, but more, than existing powers allow. We are not dealing with small sums since there is specific provision in the unaltered section 12 of the 1968 Act for working balances. We are talking about large sums above those required to finance the public sector borrowing requirement.
At this point, we must rub our eyes again. There are, as the House knows, a series of related, though dotty, assertions which are central to the monetarist belief. The first is that the principal problem of our society is inflation. The second is:
Control of the money supply will over a period of years reduce the rate of inflation.
The third is that in reducing monetary growth, and therefore inflation, there must not be
excessive reliance on interest rates".
The fourth is that it is therefore essential for the Government to plan for a
substantial reduction over the medium-term in the public sector borrowing requirement as a percentage of GDP".

The words that I have used have a familiar ring because they are culled from the chapter in the 1980 Red Book entitled "Medium-term Financial Strategy". The chapter asserts:
Public sector borrowing of the money supply has made a major contribution to the excessive growth of the money supply in recent years. A consequence of the high level of public sector borrowing has been high nominal interest rates and greater financing problems for the private sector.
The Red Book also states:
If interest rates are to be brought down to acceptable levels, the PSBR must be substantially reduced.
Together, those propositions form the major part of the monetarist doctrine as the Government expound it. Recalling the propositions, no one can dispute seriously that the Government believe that the public sector borrowing requirement is a major element in unacceptably high inflation and that its financing requires both unacceptably high interest rates and a crowding out of moneys for the private sector.
4.30 pm
The clause gives the Chancellor of the Exchequer a new power, not merely to fund the differences between Government revenues and expenditure, but to borrow without limit, providing that his purpose is linked to
the purpose of promoting sound monetary conditions in the United Kingdom".
There is no definition of
sound monetary conditions in the United Kingdom".
Therefore, it is a wholly open-ended clause, granting unlimited powers to the Chancellor to borrow money for any purpose that he thinks fit, provided only that the label "promoting sound monetary conditions" is attached. It is a remarkable extension of Treasury power with no limit written into the clause.
We know that we are dealing with overfunding on a large, perhaps massive, scale. At this point we are entitled not only to rub our eyes but to scratch our heads. If the Government are deliberately setting out and equipping themselves to borrow more than is necessary to meet the public sector borrowing requirement, surely, on their own argument, that must push up interest rates.
I recall making some modest suggestions earlier this year for an increase in the PSBR as part of a short-term strategy for creating employment and invigorating the economy. The Chancellor's principal complaint was that an increased borrowing requirement—and increase there certainly would have been—would be counter-productive because it would lead to unacceptably high interest rates. I did not, and do not, accept that that is the inevitable consequence of an increase in borrowing. However, that is what the Chancellor believed and believes. Therefore, why on earth is he coming to the House this afternoon urging us to give him power to increase public sector borrowing with no stated bounds?
If the Chancellor now maintains that overfunding will not have an adverse effect on interest rates and will not crowd out the private sector's need for capital, will he tell us why? Will the Minister make a note of that question and our expectation of a reply from him later?
That is only one part of the mystery—for mystery it is. Why is additional borrowing needed over and above that which is needed to meet the PSBR? What is intended to be done with the additional funds that are thus obtained? One purpose was discussed earlier—the exchange equalisation fund. That came as something of a surprise


to me. I have never heard of any previous Chancellor being inhibited by this constraint in dealing with matters affecting the equalisation account.
As the Minister reminded us, we were given a substantial press notice from the Treasury on 20 June. It contained an answer at great length to a written question put down by the hon. Member for Kensington (Sir B. Rhys Williams), who I see in his place, together with a long explanatory note for the guidance of newspaper editors. I refer to the written answer to the hon. Gentleman referring to the proposed amendment to section 12 of the 1968 Act. The Chancellor said:
If use of this power leads to NLF balances with the banking department of the Bank of England, these sums would be available to relieve shortages in the money market, which are a corollary of debt sales."—[Official Report, 25 June 1982; Vol. 26, c. 191.]
Shortages can be relieved in the money market only by making more money available. In other words, the funds raised by excessive borrowing—by new borrowing—are to be used via the Bank of England to supply additional money to keep interest rates down.
I assume that that is what the Bank of England has already been doing through the purchase from the banks of commercial bills from British companies that have been issued in large quantities. Indeed, I suspect that the appropriate department of the Bank of England is now stuffed with commercial bills. The provision of additional resources from overfunding into the NLF account will enable the Bank of England to acquire still more commercial bills from the banks or to assist them in other ways. If I have that wrong I rely on the Minister to put me right.

Mr. Jay: I think that the Minister used the phrase in the House this afternoon "relieve shortages in the money market". Therefore, he is admitting that those balances will be used to expand the monetary aggregate, not merely in the document quoted but in his speech today.

Mr. Shore: We are now coming to the whole point. It will be used not only to expand the monetary aggregate, but to do it in a way that cannot be detected. Surely the House knows that that is the real purpose of the whole Byzantine procedure. If the Government want to overfund, why do not they do it in the ordinary way by instructing the Bank of England to issue more gilts on the market as has happened in the past? If the Government are worried that credit conditions are becoming too tight, and that interest rates are therefore in danger of rising yet again, why do they not relax their monetary and fiscal stance? Why do they not supply the Bank with Treasury bills?

Mr. Higgins: With respect, everything that the right hon. Gentleman has just said was spelt out in the debate on the public expenditure White Paper in April. However, a moment or two ago, he asserted that the effect of this somewhat circular situation is to make the figures look better. I am not clear why he thinks that that is so.

Mr. Shore: I think that the reasoning behind the Government's approach—the Minister can clarify this—is the belief that the increase in money will, in the Chancellor's own words,
relieve shortages in the money market".
We have that on the Chancellor's authority from the written answer and from what the Minister said today. To bring that relief about it must be done in a way that will

not show up in either sterling M3 or in other monetary aggregates, or he will be in the same embarrassment that he was in in previous years.
That may or may not be right. If it is not, it is up to the Minister to give the real answer. I think that my answer is correct. Surely the Government are caught in their own monetarist trap. To relax credit in any normal way, as they clearly wish to do, would show up in the monetary measures—sterling M3 or PSL2, or whatever is the favoured measurement at present.
I can well understand the Treasury's worry that once again money supply figures should not go way through the ceiling set for the current financial year. In 1980–81, as we all know, the Government set for themselves a target of 8 to 12 per cent. and achieved 20 per cent. In 1981–82 they set for themselves a target of 6 to 10 per cent. and hit 14·5 per cent. This year they have set for themselves once again a target of 8 to 12 per cent. and failure a third year running would be an embarrassment.
The Government are engaged in an elaborate subterfuge, a sleight of hand, the purpose of which is to enable the Government to go on proclaiming the rectitude of their monetary target while negating its real world effects through the back door. In two short years the Government's argument has been stood on its head by new clause 1.
After a period of so-called rigorous money supply policy, and with the money supply again threatening to break through the ceiling, rather than face the logic of the policy—that is to say, the further raising of interest rates and/or the further increase in taxation—through this clause the Government are seeking to offset and negate the anticipated consequences of the increase in bank lending.
At the same time, the focus for attack has moved in the most dramatic way from the public to the private sector. Far from the PSBR being the all-consuming monster, crowding out, overshadowing and threatening the very existence of the private sector, we now find that the PSBR is too small for the Chancellor's public sector borrowing appetite. He needs to borrow more, not to limit public sector borrowing and public expenditure but to counter the undisciplined increase of private sector borrowing and private sector lending.

Mr. Bruce-Gardyne: Will the right hon. Gentleman cast his mind back to the period when the Labour Party was in office? Is he asking the House to believe that when the Labour Government were—in the words of the right hon. Member for Leeds, East (Mr. Healey)—paying unparalleled attention to the fulfilment of monetary aggregates, funding was exclusively required to meet the PSBR and that there was never any question of overfunding or underfunding according to the condition of monetary aggregates?

Mr. Shore: I am not aware that there was any proposal during the last Labour Government to amend the National Loans Act 1968 for the purposes that are central to this debate.
Unless we hear some quite remarkably convincing explanation of the purposes behind new clause 1—a far more convincing explanation than we heard in the Economic Secretary's opening exposition—I shall advise my right hon. and hon. Friends to oppose the new clause in the Lobby.

Mr. Higgins: I shall take up several of the points made by the Economic Secretary and by the right hon. Member for Stepney and Poplar (Mr. Shore). It is not true to say, as the right hon. Member for Stepney and Poplar sought to assert, that the public sector borrowing requirement is not big enough and that the Chancellor of the Exchequer should want to borrow even more. Of course, if the PSBR was smaller, the extent to which one would need to fund, or overfund, would also be smaller than it would otherwise be. I do not know whether that information will affect the right hon. Gentleman's voting intentions, but, with great respect, his point was not valid.
I had the great privilege of being taught by the late Sir Denis Robertson at Cambridge. His exposition was extraordinarily good and condensed. I am glad that my right hon. and learned Friend the Chief Secretary is in the Chamber, because he was at Cambridge at about the same time as me. Sir Denis used to expound his ideas by reference to "Alice in Wonderland" and the various events that took place. I wish that I had the same facility for using extracts from "Alice in Wonderland" when putting forward my views on new clause 1. Unfortunately, I do not have that skill. This subject is highly technical, but also extremely important and it should be debated.
Although the Finance Bill's long title always includes a reference to the national debt, there may have been a case for including these proposals in a separate Bill. In that way, we could have discussed them in detail. However, the Treasury and Civil Service Committee has gone into such matters and the Select Committee on Procedure (Finance), which I have the honour to chair, recently took a considerable amount of public evidence on whether the House should have control over borrowing. The Select Committee is still considering the matter in the light of the evidence that it has received. However, I am not persuaded by this afternoon's events that there is any disadvantage in going down that road.
4.45 pm
On the contrary, I have been reinforced in the view that greater parliamentary discussion of this subject is, as all hon. Members would agree, at the very heart of economic management and might well be of advantage to Parliament. Nevertheless, we have never had effective control. In medieval times, the king did not have to go to Parliament if he could borrow the money to go to war. He only had a problem when it came to raising taxes.
I turn to new clause 2. My hon. Friend the Economic Secretary was right in what he said about the effect on the PSBR. However, it was rightly said that the effect of the change will be to reduce the M3 figure. To that extent, whatever the overall effects may be in the real world or economy—call it what one will—the cosmetic effect is to reduce, perhaps significantly, M3. Therefore, if there are any changes we shall have to take that into account when evaluating the statistics.
As other enthusiasts have done, I turn to new clause 1. In the process of overfunding, the Government have run up against the traditional limit that appears in the National Loans Fund legislation and which requires that the amount borrowed should not exceed the amount required to finance the PSBR other than for so-called working balances. This measure seeks to remove that legal block. It was interesting that my hon. Friend the Economic Secretary should say that we are not up against that yet. However, we are clearly close to it. Indeed, the point was

made in an interesting article, written by Sarah Hogg, economics editor of The Sunday Times, on 27 June. There may or may not be a case for making that change. As the Opposition have said, it has never before been found necessary to do so.
The Economic Secretary explained the need for the change and perhaps he could read out the passage a second time, if that does not fall into the category of tedious repetition. Sometimes it is difficult to comprehend a passage from a Treasury brief that is read out at speed. However, the legal point is fairly clear. It is much more difficult to understand the situation that has now developed. I referred to this problem either during the debate on the public expenditure White Paper or during the debate on the Budget. The Government have been overfunding, or borrowing more than is necessary to finance the PSBR from the non-bank public; that is, in a non-inflationary way. However, at the same time, they have been lending money back to the money market to relieve the pressures there.
On the face of it, that is strange, and that is why I drew attention to the point some time ago. If the Government want to control the money supply, they traditionally try to finance the PSBR from the non-bank public or, in other words, to fund it. If one is to attract funds it generally requires a certain level of interest rates. Interest rates have to be raised if it is decided to fund more, and if it is decided to fund less interest rates can be lowered. That is the normal procedure. That is what the Government would normally do in controlling the money supply.
Given the level of funding that the Government have achieved, they could have exercised effective control during the two or three years when they failed to hit their monetary targets. However, they would have done so only at relatively high rates of interest. Whenever it has come to a choice between controlling the money supply, and giving that priority, and controlling high interest rates, the Government have always decided not to control the money supply rather than to raise interest rates to the necessary level. That has happened twice. It happened about two years ago with the so-called repos where the Bank of England effectively siphoned money back into the money market to prevent interest rates from rising. When that was stopped, because I believe that the Treasury Select Committee was rather upset about what was happening, it resorted to a different device. The Select Committee questioned the governor of the Bank of England on that matter. Effectively one has to make a choice between interest rates and the money supply.
Even the most primitive first-year, if not O-level, student will point out that the quantity or price of a commodity can be controlled but not both. When it is a question of controlling the price or the quantity the governor of the Bank of England has controlled the price, contrary to all the splendid monetarist doctrines of Professor Friedman.
Having said all that, one comes to the object of the exercise. An interesting exposition has emerged in the current issue of the Bank of England Quarterly Bulletin. The most relevant passages are on pages 179 to 182 and a beautifully inset section on page 201. It makes some points upon which I believe we can all agree. On page 179 it states:
In these conditions"—
the ones I have described—


the banks have played an intermediary role in bringing borrowers and lenders together; and, under the spur of competition, banks have become more resourceful and innovative in accomplishing such intermediation.
If I understand it correctly, it says that because of the collapse of the long run of the bond market for private companies the Bank of England has been funding it and lending bank money back to the individual companies. It is borrowing long and lending short. We know some of the implications of that operation. I believe that we can accept that that may have been a useful operation.
The bulletin points out that the operation that I have described, and upon which we are concentrating this afternoon, where the bank buys commercial bills is not, in its effect on monetary policy, significantly different from the traditional position where it buys Treasury bills. The change has come about because we have run out of Treasury bills to buy. The bank has therefore resorted to using commercial bills. I believe that we can accept that. We still return to the question why that operation is being carried out. I have run into some problems when reading the Bank of England Quarterly Bulletin. I shall spell it out as clearly as I can. Page 180 states:
The general level of interest rates depends largely on economic and financial conditions; but it is influenced also by fiscal and monetary policy as a whole. Too low a level of interest rates would not be consistent with appropriate restraint of the monetary aggregates. One route to reducing bank lending would be to seek to raise interest rates above the level appropriate for that purpose, and above the level they are now.
I can see that they might be raised above their present level to achieve that objective, but I fail to understand why one would ever wish to raise them above the level that is appropriate to achieve one's objective. I do know whether it is a typing error, but I do not believe that that paragraph makes sense. I want to find out what the whole exercise is about.

Mr. Bruce-Gardyne: I have the Bank of England Quarterly Bulletin before me. Surely when the bank refers in the second sentence to the
level appropriate for that purpose
the purpose to which it refers is restraint of the monetary aggregates. There is nothing inconsistent between those two sentences if they are read in that sense, is there?

Mr. Higgins: I believe so. The sentence reads:
Too low a level of interest rates would not be consistent with appropriate restraint of the monetary aggregates. One route to reducing bank lending"—
which of course is one component of the monetary aggregates—
would be to seek to raise interest rates above the level appropriate for that purpose, and above the level they are now.
I shall consider carefully what my hon. Friend the Economic Secretary said, but I find it a difficult paragraph to understand.
I turn to the next passage that gives me considerable trouble. Page 181 states:
If the cash thus lost"—
that is, from overfunding—
was not restored through operations by the Bank in the money market, each bank's efforts to make good its cash holding would cause steep increases in the interest rates paid by the banks for short-term money. This would inevitably bring a general rise in interest rates above the levels needed to achieve the degree of monetary control already decided as appropriate on more general grounds. The sequence is therefore completed, as a third leg of the exchange, by the Bank acquiring assets from the banking system to replenish the banks' balances.
It describes what we have just mentioned.
What is actually being achieved? It may be a sheer accident, and that in the day-to-day operations and week-to-week communications between the Treasury and the Bank of England the Bank has given an indication of what the Treasury believes the public sector borrowing requirement will be. It then says "Fair enough, go ahead—fund us that amount", allowing for seasonal variations and for a change in the profile and all the problems about which we know. Perhaps that was done and it went throughout the year. We know that the PSBR was significantly less than was expected. There was a considerable revision a few weeks ago in the PSBR figure. If the instructions had been formulated on that basis, it is possible for the Bank to find constantly in the market place that things were much tighter than it expected, and to ease the position at the front end of the money market it felt obliged to lend money back to prevent interest rates from rising excessively. It may have developed by accident like that. I suspect that that is not the case. I believe that there has been a greater degree of deliberate action than that would suggest, but that may have been how it started.
The other alternative is that which I mentioned in the context of new clause 2—that it is a cosmetic operation. I raised this matter at the end of the speech of the right hon. Member for Stepney and Poplar. He did not know the answer and, to be frank, I am not sure that I do. No doubt the Economic Secretary can tell us. Will the effect of overfunding and lending back to the money market by buying commercial bills have a cosmetic effect on the M3, or whatever monetary aggregate figures one Likes to consider? I should like an authoritative answer from the Economic Secretary.

Mr. Bruce-Gardyne: Will my right hon. Friend repeat that?

Mr. Higgins: Does the process of which we are all aware, perhaps belatedly, of overfunding and replenishing the funds of the money market by buying commercial bills have a cosmetic effect on M3, M2, or PSL1? We should like an authoratitive answer to that. If it is not a cosmetic change but something else, I return to the fundamental question that I have asked before. We have the Bank of England Quarterly Bulletin, some paragraphs of which give rise to considerable thought. As far as I can discern, at no stage does it say what the advantage is of doing it in that way rather than by funding the amount one needs, to prevent the money supply from increasing by borrowing the equivalent of the PSBR from the non-bank public.
I hope that the Government will give a clear explanation of why all this has to be done rather than keeping to the traditional arrangement of simply funding and not lending the money back. I await the answer of my hon. Friend the Economic Secretary with considerable interest.
I regret to say that even more complicated questions arise in the relationship between the short-run and long-run interest rates. If we are to go for funding on a massive scale regardless of limit, we should perhaps know at what rates the money will be borrowed and lent back and how this is to be balanced in controlling the money supply. I shall not go into elaborate detail on the subject of short and long-term interest rates as these matters will arise in due course on other new clauses. Nevertheless, they are extremely important matters and they tend to reinforce my view that more debates on borrowing might be a salutary experience for the House.

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Mr. Joel Barnett: I share the concern of the right hon. Member for Worthing (Mr. Higgins). He said that he wished that he had the power to speak in "Alice in Wonderland" terms, but I do not think that he needed it as we had something of an "Alice in Wonderland" speech from the Economic Secretary.
Even more important than the points made by the right hon. Gentleman is the fact that in new clause 1 the Economic Secretary is asking the House to grant a substantial extension of powers. I hope that all hon. Members will think very seriously about whether such an extension should be granted. Subsection (1) not only gives the Government power to raise money
for the purpose of promoting sound monetary conditions in the United Kingdom",
but seeks to insert in section 12 of the National Loans Act the words:
Any money which the Treasury consider it expedient to raise".
In other words, Treasury officials or the Chancellor need only come to the House and say that they consider that for the purposes of sound monetary judgment as explained by the Economic Secretary on 12 July they require £10 billion, £12 billion or any other sum that they care to name.

Mr. Shore: I am not sure that my right hon. Friend is correct in saying that the Chancellor or Treasury officials would come to the House. I can see no requirement to come to the House in the powers being granted to the Chancellor.

Mr. Barnett: My right hon. Friend correctly amends my comment. I assume that any Chancellor wishing to borrow a sum of money of that magnitude would have the courtesy to tell the House, but my right hon. Friend is right that the Chancellor would not need the authority of the House for that borrowing.
From time to time, the House has debated the inadequacy of its own powers over the Executive and the right hon. Members for Worthing and for Taunton (Mr. du Cann) have supported us on that. Here, however, we are blithely contemplating giving the Government huge powers to borrow unlimited amounts. The Economic Secretary has made it clear that there is no limit. The new clause also makes it clear that there is no limit on the amount that the Government may borrow on behalf of the public of this country. That is not good enough, and it cannot be accepted on the basis of the wholly inadequate explanation so far given by the Economic Secretary. Indeed, even if there were a better explanation, powers of this magnitude are too great to be given to the Executive. The Government should not have such wide powers for no other purpose than promoting sound monetary conditions.
The reasons given by the Economic Secretary were rightly mocked, if that is the correct word, by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). Even if there were still the odd hon. Member who supported the Economic Secretary's monetarist theories, he would have found it difficult to go along with his argument today. In fact, there cannot be many of them left in the House or indeed in the country, as most of the major exponents of the idea have been changing their minds in every weekly article. I hope that the Chief Secretary will forgive me for putting it in that way, but his distinguished brother changes his views on these matters quite

frequently, as do others in the monetarist camp. I am not sure whether the Chancellor himself has yet done so. In any event, if such a huge extension of borrowing powers were to be granted, we should need far better explanations from the Government.
If one of the purposes of new clause 2 is to allow borrowing for local authorities at cheaper rates than the authorities themselves could achieve because central Government can borrow at lower rates, I wholly support that aim. In normal circumstances, money can certainly be borrowed more cheaply through the National Loans Fund. The explanation that this would provide added flexibility for local authorities is therefore acceptable. I know that my right hon. Friend the Member for Stepney and Poplar would not have disputed that as one reason for the additional powers in new clause 2.
It is not new clause 2 that gives cause for concern, however. It is the provisions of new clause 1 and the way in which they are proposed to be inserted into a Finance Bill. As Mr. Speaker has selected the new clause, I assume that it is in order to amend non-tax legislation through a Finance Bill, although I find it odd that such a major extension of powers, which have nothing to do with tax matters, is being dealt with in a Finance Bill. Such an important subject would be far better dealt with in a separate Bill to amend the National Loans Act. I did not raise the matter as a point of order, as I assumed that Mr. Speaker knew what he was doing in allowing this to be in order. Nevertheless, it is unsatisfactory by any standards that the matter should be debated in relation to a Finance Bill.
The Economic Secretary's other reason for seeking these huge new powers for the Executive is, as he has told us and as new clause 1 states, the promoting of "sound monetary conditions". Things might be easier if we knew what that phrase meant, but the Government are clearly unable to explain what they mean by it, so it is very difficult for the House. Certainly, I find it difficult to understand how the Government intend to manage sterling M3 and all the other financial indicators in arriving at a concept of sound monetary conditions that would justify their being able to borrow very large sums of money.
I very much share the scepticism of the right hon. Member for Worthing about the Government's monetary policies. If money aggregates, credit and all the monetary circumstances affecting economic policies could be adequately measured, this might have some effect in the real world, but the Government, like most previous monetarists, recognise that no such simple analysis is possible. Nor is it given to Government to control it even if it were known to them. Yet the Economic Secretary is asking the House, for these inadequate reasons, to give him these powers in order to achieve sound monetary control. It is wholly unsatisfactory for the Economic Secretary to come to the House in this way.
I agree with my right hon. Friend the Member for Stepney and Poplar—I say this with no disrespect to the Economic Secretary—that when the Chancellor of the Exchequer seeks such a substantial increase in powers he should come to the Chamber himself. This is not a small power that we are being asked to give to the Government. We are being asked to concede a major extension of powers, and it is not right that a junior Minister should come to the House and, with so inadequate an explanation, ask us to grant it.
Hon. Members will have heard the other arguments about what has been going on in the monetary area. The right hon. Member for Worthing referred to the way the Government have been borrowing money and lending it back in order to create a somewhat different position from that which we always understood them to want. I always believed that the Government were true monetarists—if there is such a thing—in the true market sense; that the market will decide what interest rates should be. But that is not the case. Not only will the market not decide, but the Government will intervene, with the additional powers that they seek, not just cosmetically to "fiddle"—I use the word quite deliberately—the monetary aggregates but also to fiddle what should be the market view of interest rates. The Government will take a market view. If we give them these powers they will borrow money in order to manipulate the monetary aggregates and cosmetically make it appear as though sterling M3 has not risen to an extent that they would consider bad, because it would affect inflation.
Even the Economic Secretary must now recognise that there is no evidence that the movement of sterling M3 has any meaningful effect in the real world of inflation and economy. There has been no evidence of that in the past three years under the Government's management of the economy. I hope that those who devised the word "management" will forgive me for using it in that sense. I hope that no one will believe that what has happened to sterling M3 over the past three years under the Government's management has had any real effect on what has happened to the real economy.

Mr. Bruce-Gardyne: I can assure the right hon. Gentleman that I do not personally accept his present dismissal of the significance of sterling M3 for the performance of inflation at one remove. Is the right hon. Gentleman telling the House that he has changed his view fundamentally, because the Labour Government, of which he was a distinguished Chief Secretary, used sterling M3 as their objective from 1976?

Mr. Barnett: I noted that the Economic Secretary said that he did not personally accept that sterling M3 has had no effect on the real economy. I assume that perhaps some hon. Members on the Treasury Bench do not take the same view as the hon. Gentleman. Indeed, I would be surprised if they did. He must know that the reason for the current recession has nothing to do with the sterling M3 aggregates but with the desperately deflationary policies pursued by the Government in the past three years. The Economic Secretary must know that and if he does not, some hon. Members on the Treasury Bench and. certainly hon. Members on the Conservative Benches, will know that that is the case. I am obliged for the hon. Gentleman's kind reference to my term as Chief Secretary. He must be aware that we never placed the same reliance on sterling M3 as the method of controlling the economy as the Government appear to be doing at the moment.
I did not wish to speak for long. I wished to make it clear that there will be hon. Members on both sides of the House who will not lightly give these powers to any Government. They are substantial powers, to borrow billions of pounds for utterly inadequate and ludicrous reasons. I therefore ask the House not to agree to new clause 1.

Mr. Richard Wainwright: It has been made quite clear from both sides of the House that in these two important, separate but related matters, the Government's design has been furtive and their execution shoddy. Their design has been furtive because, to amend in two serious respects the National Loans Act 1968, they have come along in the dog days of the Finance Bill and, at a wholly inappropriate moment, have introduced these two matters and have also tried to fudge them together for reasons about which I shall speculate briefly in a moment.
The execution is shoddy because, as has already been said, the Chancellor of the Exchequer should have been here to introduce the two important topics. The Government have once again fallen back on the fairly effective maxim that if one wants to try to bamboozle the House, one should open the debate with someone who is thoroughly bamboozled himself. That impression came through clearly in the genial and, I am sure, transparently honest but, nevertheless, hopelessly confused remarks of the Economic Secretary.
Most of what needed to be said about new clause 1 has been said with great point and precision from both sides of the Chamber. It would be redundant and otiose for me, in less happy language, to repeat that, except to say that at no point did the Economic Secretary try to give a word of explanation or enlightenment as to what "promoting sound monetary conditions" is meant to mean. He has made no reference to one of the great dials of his economic controlling machine, or one of the key indicators on which the Treasury Ministers' eyes are permanently fixed when they are not looking at the other indicators—PSL2. Will the Economic Secretary tell us, when he replies, what effect new clause 1 is expected to have, if it is made full use of, on PSL2? I remind him that under Government policy PSL2 now ranks equally alongside M3 as one of the three regulators.
New clause 1 appears because the Government are increasingly unwilling to follow through the logic of their own announced policies. It is all very well to make dogmatic remarks about pressing on with the conquest of inflation, the reduction of the money supply and the rate at which the money stock is increasing but the moment that begins to imperil the future of some of our greatest businesses and threatens to make interest rates even more intolerable than they are at present, the Government are in full retreat in a furtive manner by rescuing the businesses and keeping interest rates less horrific than they might otherwise be, by a back-door method.

Mr. Tim Eggar: Even if that description were true, which of course it is not, surely the hon. Gentleman would welcome what the Government are doing since it is a pragmatic approach?

Mr. Wainwright: Not for the first time, the hon. Member for Enfield, North (Mr. Eggar) has anticipated me. I was about to say that if only these matters could be attended to in the light of day, if only the Government would honestly admit that their monetarist dogma is dead because it has brought the country to a state that can no longer be tolerated, and if only they would come clean on the fact that they are backpedalling like mad to keep some of our major industries in being, they would certainly merit support from the Liberal Benches. However, it is all


done by the back door, with a great deal of abracadabra and elaborate press notices which are intended to cover up the Government's full and rather humiliating retreat.
Is new clause 1 confessedly an interim, makeshift measure, which will lead on to a more elaborate new structure that the Government may have in mind, or do the Government hope that all the sticking plaster and pieces of string will hold together, in the manner of the late Heath Robinson's contrivances, for the remaining period of the Government's term of office? It has been suggested in responsible financial journals that all this is very much an interim, makeshift affair and that the Government intend to come forward with more solid proposals. I hope that we shall be told whether that is the case.
Throughout his speech, the Economic Secretary spoke very rapidly, but at no time did his syllables pop out quite so rapidly as when he skated over the fact that there had been some infringements of this part of the National Loans Act in the past but that they had been very little ones.

Mr. Bruce-Gardyne: I made it clear to my right hon. Friend the Member for Worthing (Mr. Higgins) that there had been no infringements, and I can assure the hon. Member for Colne Valley (Mr. Wainwright) about that.

Mr. Wainwright: I regret very much that, not having shorthand, I was unable to record the hon. Gentleman's precise words. But he will recollect that in his opening speech he said something rather different from the matter that the right hon. Member for Worthing put to him. The right hon. Gentleman asked about the future. He wanted to know how near the Government had now come to needing this new gateway. But in his opening remarks the Economic Secretary undoubtedly seemed to refer to the fact that once or twice in the past these limits had been exceeded. At any rate, will he make it clear that there has been no incident in the past when this has occurred?
Will the Economic Secretary also say what is the Government's attitude to some parliamentary control over this completely new permission? It is bad enough for the House to have no control over conventional Government borrowing except in very elaborate and recondite ways. But what parliamentary control do the Government have in mind for this completely new and larger power?
I turn to new clause 2, which has been fudged together with new clause 1. I am not surprised about that, because the need for screening this matter is very great, bearing in mind that new clause 2 confirms that the Government are a nationalised retail money lender. That is undoubtedly the case, on the Economic Secretary's own admission. Instead of having to go to the banks, local authorities will have yet further borrowing facilities from the Government.
I appreciate that that is no skin off the nose of the Labour segment of the Opposition. But it is very offensive to right hon. and hon. Members on the Liberal Bench, and it is made no lighter when the Government say that it will not affect the public sector borrowing requirement. It will not, of course; but they admit that it will enlarge the central Government borrowing requirement. It is a further measure of centralisation in Whitehall, rather than having a plural approach under which the banks and other private moneylenders outside Government control can deal with these matters.
What has the Economic Secretary to say about that? What reason is there, apart from an adjustment to the

Government borrowing requirement, for a Conservative Government to set themselves up as a sophisticated money-lender to local authorities in this way?

Mr. Joel Barnett: What reason is there for a Liberal to say that a local authority should be compelled to pay more for money that it borrows when it can get it cheaper by just using a mechanism which allows the Government to lend to it?

Mr. Wainwright: There are two reasons. The first is that a plural approach in these matters is very much healthier from the financial point of view. I have infinitely greater trust in the capacity of banks to assess the creditworthiness of local authorities than in the capacity of Whitehall, not simply because of Whitehall incompetence but because, so often, Whitehall is influenced by the political colour and plans of a local authority. I want it on record that to Liberals this is a retrograde approach.
The second reason is that I do not believe that local authorities should have a privilege that private industry does not enjoy. Why does the Economic Secretary stop short of opening this facility to industry as well? How will he explain to industries up and down the country that he is giving this privilege to public bodies and denying it to private industry?
Unhappily, these two clauses are linked. If a Division is called, I shall recommend my right hon. and hon. Friends to vote against both, if possible.

Mr. Horam: There is no doubt that the Economic Secretary drew the short straw when his Treasury colleagues were deciding among themselves who was to open the debate on this subject. I am sure that the hon. Gentleman regrets that he was in the office that afternoon and happened to pick the wrong straw. He was handed a tricky brief on a very important subject. As usual with a tricky brief on an important subject, the hon. Gentleman tried his best, which was simply to read a highly technical brief at great speed. That is always the standard approach—

Mr. Jack Straw: He does his best.

Mr. Horam: We saw the hon. Gentleman's worst in the Standing Committee. Though genial, occasionally he was rather more long-winded and labyrinthine in his expositions than the rapid nose-to-the-Dispatch Box style that we had to day. I have no doubt that his right hon. and hon. Friends told him to get it through quickly in a quarter of an hour and flood hon. Members with technical details so that they were unable to see the wood for the trees. Unfortunately, the hon. Gentleman made a few hiccups on the way and there were a number of interventions which revealed that he had not understood his brief in the first place. Perhaps the hon. Gentleman had a good weekend and was not expecting this kind of difficulty on a Monday.
Before making a few remarks about the new clauses, I want to join the protest made by the right hon. Member for Stepney and Poplar (Mr. Shore) and the right hon. Member for Heywood and Royton (Mr. Barnett) about the propriety of all these amendments and new clauses and the way that we are required to discuss them. While the Economic Secretary and others were speaking, I worked through the amendments and new clauses to be considered today. I discovered that there were no fewer than 79 pages


of new clauses and amendments to be considered in two days, and I calculated that nearly half were Government new clauses and amendments.

Mr. Joel Barnett: There are, in fact, 80 pages.

Mr. Horam: I did not include the starred amendments which presumably the Government tabled very late in the day, all of which, incidentally, are the Chancellor's amendments. The right hon. Member for Stepney and Poplar was right to make his protest.
On one issue, the heritage, I notice that as a result of Mr. Speaker's selection we are to consider Government new clause 46 together with no fewer than 17 separate Government amendments to give effect to the changes that the Government wish to make following our debate in the Standing Committee. That is a scandalous amount of technical detail for the Opposition parties to have to absorb in the time available. It demonstrates once again how farcical our proceedings are, both in Standing Committee and on the Floor of the House when we deal with a Finance Bill.
In my view, the Government should implement as soon as possible the idea that has been around for some time of having a technical Finance Bill, which can be dealt with separately and where all these matters can be investigated. In addition, I think that we should have some Select Committee procedure.

Sir William Clark: No.

Mr. Horam: A Select Committee procedure is appropriate in this case because, rather than the Economic Secretary finding himself in the difficulty that he experienced when hon. Members attempted to intervene in his speech, when he could not readily admit that he did not know the answers to hon. Members' questions, he could summon up an expert without any loss of face who immediately could supply the Committee with the answers to hon. Members' questions. We could have that sort of informed procedure in a Select Committee which we cannot have in a Standing Committee or on the Floor of the House. All this business of notes flying back and forth is really quite ludicrous. That brings out the point of how nonsensical our basic procedures are for dealing with important, highly complicated and technical financial legislation.
5.30 pm
When I intervened in the Economic Secretary's speech I asked about the figuring behind the £20 million estimate of the savings to local authorities. I have been a Minister. The hon. Gentleman is a Minister. I know that that figure was not plucked out of the air. It may have been a crude estimate or a guesstimate but it was based on the idea of the shift of the £10,000 million that the local authorities are borrowing at present. The figure must be based on something. The Minister cannot pretend that it is merely a figure that a civil servant alighted upon for no other reason than that a figure had to be included in the Minister's speech. Perhaps the Civil Service is now so overburdened with work that it does not bother to put any figuring behind its brief to the Minister. If so, I hope that the Minister will comment on that matter. There must be something behind the figure. I hope that the Minister will tell us what it is.

Mr. Straw: Does the hon. Gentleman agree that if the Treasury has an estimate of a saving of £20 million, it must

also have an estimate of the effects of that change on the money supply? It may be a broad estimate, but it must have an effect. The Minister should come clean and tell the House what the effect is likely to be.

Mr. Horam: Predictions of the money supply by the Government are fraught with difficulties. The Minister may have some difficulty in coming up with that figure.
I should be glad if the Minister would oblige the House—as this is a matter of fact and history, not of estimate or prediction—by telling us how the £10,000 million, which is a large sum, has built up over the past few years. Has there been such a rapid increase in the past two or three years that it must be dealt with, or has the increase been the same for many years, and the Government are now dealing with it for other reasons than we have discussed? Has there been a sharp increase leading to the £10,000 million figure of borrowing by local authorities from banks, or has the increase been slower?
As has been said, new clause 1 gives the Government the ability to borrow more than is required by public sector borrowing. That departure has been made for the first time. As the right hon. Member for Heywood and Royton said, it is a substantial increase in the Government's powers. It is part of the great tradition of the Government giving themselves a remarkably good arrangement for their borrowing. That has been part of the approach of Governments of all complexions to those matters for a long time. That is one of the difficulties that industry has had to face over the years. The Government have always put themselves in a good position to borrow the money that they require. That has led, for example, to the indexation of Government bonds and other factors that we have discussed in the Finance Bill. From time to time it has caused difficulties for industrial borrowers. That is the other side of the coin. The weight of Government borrowing on the terms that they can command has always created difficulties at certain times in our history for industrial borrowing. It has also led to higher interest rates.
That consequence would not matter all that much. I do not fundamentally believe that industrial finance is at the heart of our problems, as some do. It is a problem, but it is not at the heart of our difficulties. It would not matter so much if the Government had a different economic policy and believed, as we in opposition believe, that the problem should be dealt with in the right way by dealing with demand instead of simply with interest rates. It is the Government's policy to focus their entire economic policy on the behaviour of interest rates. That is their present dilemma. They are pursuing a monetary policy that leads, as night follows day, to higher interest rates. They are now trying to dodge the consequences of higher interest rates on industry.
We saw the consequences of the Government's monetary policies and of higher interest rates last autumn, when an incipient upturn was gathering force in the economy. Numerous indicators showed that. However, the Government came in and clobbered the upturn on the head by higher interest rates because they were concerned about the effects on inflation caused by the beginnings of an upturn in the economy. Therefore, there has been a plateau and a slight tailing-off in the past six months. There is still no steady upturn, which the Chief Secretary has been predicting for 18 months. That shows the contradiction between the Government's monetary


approach and what they wish for the health of the economy and what the CBI and industry are telling them is necessary for the good handling of the economy.
I was interested that in his short and rapid speech the Economic Secretary defined the Government's monetary policy in an unusual way, to take account of the inherent contradiction in his approach. He said that monetary policy was about the abatement of inflation and keeping down interest rates, as far as possible consistent with the abatement of inflation. However, monetary policy is nothing of the kind. Monetary policy states that inflation is caused by an expansion of the money supply and we should control that to abate inflation. It has nothing to do with keeping down interest rates as well, for other reasons. The hon. Gentleman wants to keep down interest rates because he is worried about the consequences of high interest rates on industry in general. It has been brought home to him by industrialists how severe and disadvantageous are those consequences. The Government are now trying to fiddle the books so that they can have their cake and eat it. It would be more sensible if the Government admitted the collapse of their central policy in name as well as in fact so that we need not have to put up with the nonsense of the new clauses.

Mr. Robert Sheldon: Scepticism has been voiced about new clause 1 from all parts of the House. The right hon. Member for Worthing (Mr. Higgins) complained about the lack of control by the House over borrowing. We look forward to conclusions being made by the Committee of which he is the distinguished chairman. My right hon. Friend the Member for Heywood and Royton (Mr. Barnett) made an important contribution. He said that the powers that were being requested were too great for the way in which they had been asked for. The hon. Members for Colne Valley (Mr. Wainwright) and Gateshead, West (Mr. Horam) added their sceptical remarks to the debate.
It is unsatisfactory that these matters are being discussed on Report. It would have been an advantage if there had been another Bill, as my right hon. Friend the Member for Heywood and Royton suggested, but as we did not have that, those matters should have been discussed in Committee, where we have only recently ended our deliberations.
Those weeks—they seemed like months—in Committee were precisely to discuss such matters. Such Committees were devised and brought into fruition through the combined efforts of the late Dick Crossman and Iain Macleod. They were devised so that there would be close and detailed scrutiny of important matters by people who had a long and continuing interest in them. They give opportunities for people to question and deliberate effectively. Only a couple of weeks after we finished the Committee stage the new clause has been brought up on Report for the first time. That clause is not alone, because there are another five new clauses and two lengthy schedules, apart from a whole host of amendments. Why is there this late rush, when we started the Finance Bill at an early stage, when there was plenty of time to discuss those matters?
We know that the Ministers cannot be overworked. There are six Treasury Ministers being paid for by the country. The main consequence is that they are stumbling over each other. The problem is that there is inadequate

discussion because it is taking place on the Floor of the House instead of in Committee, where there could be the detailed discussion and deliberation which we should have had.
I shall deal first with new clause 2, because it is the least controversial of the two new clauses now being debated. We have no quarrel with the variable rate facility. We understand the advantages to local authorities in being able to borrow from the Government at rates that, normally speaking, are greater than those they could obtain from the commercial banks. We note that there is a £20 million a year saving, but none of us would be foolish enough to think that was the reason why the Government produced the new clause. The Government are interested in getting the local authorities to borrow from the Government rather than from the banks and, therefore, to reduce the money supply. The hon. Gentleman could not quantify that important factor, which must have been one of the prominent reasons for introducing new clause 2.
However, perhaps we have said enough about that, both in speeches and interventions, and I now turn to new clause 1. My right hon. Friend the Member for Heywood and Royton is right. The powers in new clause 1 are far greater than necessary for the uses to which the Government will be putting to them. The criterion is that money can be raised in excess of what is required for sound monetary conditions. There was no attempted definition, not even an explanation, by the hon. Gentleman in his opening speech of what he meant by "sound monetary conditions".
A few years ago, when we were bound by the three parts of sterling M3, we thought we knew what the Government had in mind by "sound monetary conditions". They had a long-term target. They expressed it fully in the Red Book. But now they have many more targets. They have M1, M3, sterling M3, PSL1, PSL2 and MO. These all form part of the monetary policy that the Government claim is necessary to maintain the financial and economic position of the country that they are privileged to govern.
If there are to be such widespread powers, we shall need and should demand, much closer monitoring of these figures. We shall need to know the amount of money that is being lent to local authorities through the National Loans Fund, the effect on sterling M3 and the other money indicators of such lending to local authorities and the effect of interest rates at various time scales, both long and short term. We shall require that essential information. We shall regularly ask for it and expect to receive answers.
Monetarism still rules the financial and economic prospectus of the Government. It was said that money supply and its control was the method to be used for reducing inflation. That was the way in which inflation was to be kept under control. We have seen all these new factors coming into operation which makes one very sceptical as to how far this precise relationship between money supply and inflation still exists. In fact, the Bank of England was deliberately overfunding as a means of keeping down the money supply. As a result, the banks were illiquid and interest rates threatened to rise. Therefore, the Bank of England started buying commercial bills. Why did the Bank of England do that when it was selling gilts at the same time? The Bank of England was both seller and buyer simultaneously. When an official body undertakes both tasks, one must ask, "Why?" The reason is that these figures conceal the true money supply in a definition that one could accept as more


valid than any of those previously put forward. What happens is that the big companies have been selling their bills to the banks. The banks have been selling their bills to the Bank of England and the corporations have been able to make use of the funds they obtain to some extent, for such purposes as "round tripping". As time goes on they can do that to a much greater extent. The Government are introducing the new clause to make use of the National Loans Fund to overfund the moneys that they require.
5.45 pm
The simple truth is that this selling of bills to the banks arises from the fact that the commercial sector has been able to create its own money supply. The corporations have sold their bills to their own banks. That is equivalent to the Chief Secretary to the Treasury putting his name to an IOU for, say, £100. He will have no difficulty in raising a similar amount of money from, say, the Financial Secretary. The Financial Secretary, holding this particular piece of paper and being in need of funds can, by endorsing the IOU, raise money from the Economic Secretary to the Treasury. In that way, the money supply of the country would be increased by £100. If the Bank of England buys that bill, it can claim to have reduced the money supply by £100. But that reduction is only notional because in that way the money supply can be expanded indefinitely and, likewise, contracted indefinitely.
If a respected company starts to pay its own creditors with, say, a 90-day paper, those creditors can pay their suppliers with the same piece of paper. We then have a further extension of the creation of money that we are seeing in its infancy, but that is having its effect—a slight one—on the operations of the monetary markets. The right hon. Member for Worthing is right. Such a system comes close to "Alice Through The Looking Glass".
Promoting sound monetary conditions, which is the criterion we now have to make use of, follows three years of monetary endeavour. It was claimed that monetarism would reduce inflation and keep wage claims down. Confrontation with the trade unions was to be avoided by making use of the money supply. In practice, none of that has happened. However, we have seen deflation.
The hon. Gentleman should not take credit for controlling the money supply when it has increased by 60 per cent. in the past three years. According to that theory, we are ready for the explosion in prices that some members of the City university expected to see. The distinguished economists in that university, headed by Brian Griffiths—who is one of the few economists for whom I have great respect and even some admiration and affection—wrote last year that
we are equally sure that last year's money growth will push up prices, sooner or later, and probably sometime in 1982.
That was written as a result of seeing the enormous increase in money supply, which the economists could predict with certainty would have its effect on inflation. It is not the money supply that has reduced inflation, but the deflationary policies of the Government. On Thursday of last week, Sam Brittan made what sounded to me very close to a recantation in referring to a £5 billion boost. He qualified it by saying that it needed to be set convincingly in its context. Most of us would qualify our comments in a similar way. He said that a £5 billion boost may well be within the safety margin. So we are seeing what I consider to be the death throes of monetarism. If that is so, why are

we having the new clause? I believe that its purpose is to conceal what the money supply is to be over the remaining years of this Parliament.
In practice, it is not the money supply that is controlling the economy. It is not the money supply that is the main indicator, even if we take an amalgam of the five or six money supply indicators. What is controlling the economy, and is being used to control the economy, is the exchange rate. It is being set at an effective rate of 90 to 92. We have seen the dollar strengthen enormously; we have seen the lira weaken, and we have seen the French franc weaken. Currencies have gone up and down but the effective exchange rate has been incredibly stable, and it leads one to the conclusion that that is the prime determinant of the Government at present.
I am always suspicious of the Government when they say that they have multiple targets—inflation, balance of payments, unemployment, outward exchange rate, and so on. There is always one overriding target. Mine happens to be unemployment, followed by output, but I believe that the Government's overriding target is the exchange rate.
Almost two years ago, the Bank of International Settlements—that combination of the important bankers in the Western world—said that the monetary argument was as near to a laboratory experiment as could be devised in order to show, once and for all, whether a country was wise or unwise to operate in that way.
The laboratory experiment is now over and the conclusions are clear. Many years ago, when I was a boy, I worked on a chicken farm. I saw then that when one pulled the neck of a chicken and it died, the chicken was more vigorous after its death than it was before. The various parts of the body jerked and moved violently in all sorts of directions. That is not dissimilar to what we are seeing here with the new clauses. The body is dead but the Government still try to retain, for decency's sake, some of the old ideas to which they were once attached. The absurd notion that the economic policy of the country should be run in that way leads us to say that the new clauses—and particularly new clause 1—should have no place on the statute book. We shall be voting against them tonight.

Mr. Bruce-Gardyne: I was touched by the opening remarks of the right hon. Member for Stepney and Poplar (Mr. Shore), who referred to me as the youngest member of the Treasury team. I have to tell the right hon. Gentleman that flattery will get him nowhere. In any case, in that respect, as perhaps in others, his facts were wrong.
I had not expected the debate to end on the rather bloodcurdling note that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) saw fit to inject into the closing minutes of his speech. I thought that it was a bit early in the evening for such rhetoric.
Broadly speaking, there have been three strands in the debate. I shall try to deal with them in turn. We have had a variety of comments on new clause 2, and I should like to deal with them first. On the whole, hon. Members on each side of the House saw the logic of the change that we are proposing to make. The exception was the hon. Member for Colne Valley (Mr. Wainwright), who detected in new clause 2 a sinister plot to achieve a new type of centralisation in our affairs. In clause 2 we are seeking to provide a facility that the local authorities are


free to use or not as they choose. As I said in my opening remarks, many of them have expressed a wish to have that facility.
It will not be a question of having only one channel for borrowing, any more than it has been in the past. The local authorities have borrowed from the Public Works Loans Board in the past and they will borrow from it in future. They have borrowed from banks in the past and will do so in future. What they will not be able to do is to borrow from the Public Works Loan Board on a variable basis. That is all we are concerned with in new clause 2.

Mr. Richard Wainwright: The Economic Secretary has not addressed himself, either in his opening statement or in his reply, to how the Government can live up to his earlier assertion that there will be no element of subsidy in the rates, which will be considerably finer than those offered by any of the clearing banks.

Mr. Bruce-Gardyne: That point was not raised by the hon. Gentleman in his earlier remarks, as I recall. The whole purpose of the clause, and the way in which it is drafted, it to ensure that that element of subsidy is not present. The clause is based on our experience of the way to relate forward expectations of interest rates in the money markets. Obviously, if it becomes apparent that the terminology of the clause is not appropriate to achieve its purpose, we shall have to look at it again, but we believe that it is correct and that it will ensure that there is no element of subsidy in the on-lending.
I turn now to the £20 million saving to the local authorities, to which I referred in my opening remarks and in regard to which several hon. Members seem to have drawn conclusions about the arithmetic and the scale of transaction. There is no mystery about it. The calculation of the £20 million is based on the fact that all the local authorities' borrowing, whether from the PWLB or the banks, will be done at a slightly finer rate, because the finer rate that the local authorities can obtain from the PWLB will also impact upon the rate that they can obtain from the banks. The £20 million is related to the scale of borrowing that the local authorities have outstanding—the £10 billion that I quoted earlier. No inference or conclusion whatever can be drawn in regard to the scale of the switch that we foresee, because we are not able to make that forecast or prediction.

Mr. Robert Sheldon: At any rate, the Minister should be able to tell—because the calculations refer to it—what proportion of the local authorities' borrowing he now expects to come via the National Loans Fund.

Mr. Bruce-Gardyne: I do not think I can, because, as I said earlier, we are not in a position to dictate to the local authorities what to do about their borrowing. The choice is theirs. We cannot predict the scale on which the switch will occur. From the evidence that we have received of their interest in the proposals, we believe it will be substantial, but I cannot tell the House the precise scale. I assure the House that the £20 million is entirely related to the totality of local authority borrowing, not to the switch that we expect may take place.

Mr. Straw: This is a complicated point and economic pressures make it more so. Is the hon. Gentleman willing

to write to my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) setting out how the calculation of £20 million was made?

6 pm

Mr. Bruce-Gardyne: Yes. I can give the House the answer now. We expect to be able to save about a quarter of 1 per cent. off the rates by cutting margins above the London inter-bank offer rate. The banks are expectd to do the same in response. Thus, the rate on the £10 billion, to which I referred, would fall. One quarter of 1 per cent. on the £10 billion would equal a saving of £25 million a year. That calculated saving may be slightly overstated, so the figure of £20 million is to allow for the effect not being quite symmetrical. That is the basis of the calculation.
Most of the contributions made by hon. Members referred to new clause 1, with which I shall now deal. The right hon. Member for Heywood and Royton (Mr. Barnett) speaks with great authority and the House always listens to him with respect. One is bound to take seriously his argument about the scale of unbridled licence to borrow that the Government wish to achieve through the new clause. As my right hon. Friend the Member for Worthing (Mr. Higgins) said, the House has never controlled Government borrowing in any shape or form. My right hon. Friend reminded the House that the method in the clause was the means whereby, in days gone by, monarchs avoided the need to ask the House to raise taxes. They borrowed for as long as they could and, when their credit ran out, they were then forced to ask the House to raise taxes.
It would be a massive innovation for the House to seek to exercise direct control over public borrowing, but the new clause is not an innovation. My right hon. Friend and his distinguished Committee are considering the issue at present. I had the honour to submit myself to the scrutiny of the Committee the other day, and I await its report with great interest. However, it would be new for the House to exert control over Government borrowing. The terminology of the clause is not new. Furthermore, the terminology of section 12 of the National Loans Act is remarkably widely drawn. It allows the Government to raise any money to meet
any excess of payments out of the National Loans Fund over receipts into the National Loans Fund.
These may be raised
in such manner and on such terms and conditions as the Treasury think fit.
Money so raised is paid to the National Loans Fund. The only distinction is that the National Loans Act lays down that the balances must be only working balances.

Mr. Robert Sheldon: No.

Mr. Bruce-Gardyne: If the right hon. Gentleman will show some patience, I shall deal with that issue.
Some hon. Members have talked about overfunding as though it were something that the Government had invented. It is nothing of the sort. I ask the right hon. Gentleman to recall the performance of the Labour Government on that subject. He said that the Labour Government had never indulged in lunacies such as overfunding. Let me refresh his memory. The right hon. Gentleman will remember that in 1977–78 the PSBR was just under £5·6 billion. Debt sales to the public in that year amounted to £6·7 billion, so there was substantial overfunding for the same reason as the Government believe it advisable to have overfunding.

Mr. Joel Barnett: If the Economic Secretary is saying that it was possible to do that in 1977–78 under existing legislation, why does he now wish to widen it substantially to allow unlimited borrowing powers?

Mr. Bruce-Gardyne: The right hon. Gentleman anticipates me. I shall come to that point later. The point that I wish first to make clear is that there is nothing new about overfunding. Furthermore, the Labour Government believed it right to overfund from time to time for precisely the same reason.
In answer to a question from my right hon. Friend the Member for Worthing, I should say that this is not a cosmetic operation. We are trying to ensure that we can increase the public holding of secure instruments—to move money away from cash and, therefore, away from immediate spending powers. There is nothing cosmetic about that.
My right hon. Friend the Member for Worthing and others complained that I read this part of my opening speech too quickly, so I shall repeat the crucial paragraph:
At present section 12 of the National Loans Act allows the Treasury to borrow to meet the outgoings of the NLF—which means basically the central Government borrowing requirement, rather than the PSBR, plus whatever sterling the exchange equalisation account needs—plus enough to meet any necessary working balances.
That is what the National Loans Act allows us to do, and that meets the point raised by the right hon. Member for Heywood and Royton and others.
The paragraph continues:
It has over recent years been possible for sales of long-term debts to exceed the outgoings of the NLF"—
without running into trouble with section 12 of the Act—
as the excess could be used to repay the so-called floating debt, that is, Treasury hills held by the banks.
The problem is that the banks' holdings, because of this operation—indulged in by the Labour Government and by this Government from time to time—have gradually soaked up their holdings of Treasury bills. That has meant a limitation of our ability to fund through section 12.

Mr. Higgins: We all agree that the operation through commercial hills is the equivalent economically to the old operation through Treasury bills, so that may be a non sequitur. However, I wish two points to be clarified. First, my hon. Friend said that there was nothing cosmetic about the operation, but he did not refer to the overall operation that we have been discussing—overfunding, on the one hand, and the buying of commercial bills, on the other. Does that composite operation have a cosmetic effect on the money supply figures?
Secondly, my hon. Friend said that overfunding was designed to get more money permanently into—I forget the expression that he used—secure assets. One can do that up to the point when one is funding, because the PSBR is being funded from the non-bank public sector. Therefore, there is no effect on inflation or on the money supply. However, that is not an argument for overfunding, still less for this curious circular arrangement. What is the case for overfunding, on the one hand, and lending back, on the other?

Mr. Bruce-Gardyne: The purpose of overfunding, as used on occasion by the Labour Government, by Governments, I suspect, that preceded them, and by this Government, is to counteract the impact of a surge in bank lending to the private sector. The dependence of the corporate sector on bank mediation and the dependence of

local authorities on borrowing from the banking sector has meant that there has been a surge in bank lending. This is why new clauses 1 and 2 are interrelated. To counteract this surge, it has been considered essential, on occasion, to overfund and so prevent an excessive growth in the broad monetary aggregates.
I insist that this is not a cosmetic operation. The whole purpose is to move savings held by the public out of money into long-term assets that are further removed from market liquidity. That is the essential purpose of the whole operation.

Mr. Higgins: I appreciate the point that my hon. Friend seeks to make. He remarked earlier that interest would be paid on balances that then accrued in excess of the working balances covered by the existing legislation. I seek to identify exactly the nature of these overfunded balances. Where do they reside? By whom is interest paid?

Mr. Bruce-Gardyne: The overfunded balances, if the House approve new clause 1, would lie in the National Loans Fund. It is to enable the balances to accumulate in the National Loans Fund, which cannot happen at present because of the restrictions under section 12 of the National Loans Act, that we seek authority for the new clause.

Mr. Robert Sheldon: rose—

Mr. Bruce-Gadyne: I am sorry. I am not giving way.

Mr. Sheldon: rose—

Mr. Deputy Speaker (Mr. Bernard Weatherill): Order. The Minister is not giving way.

Mr. Sheldon: I think he is.

Mr. Bruce-Gardyne: No, I am not giving way.

Mr. Sheldon: On a point of order, Mr. Deputy Speaker. I do not often raise points of order. The new clause was tabled on Report to avoid proper discussion in Committee where hon. Members could have examined it thoroughly. By refusing to give way, the hon. Gentleman is not allowing discussion of these important matters at this stage, having been able to avoid it in Committee.

Mr. Deputy Speaker: I regret to say that I am not aware of these matters. I am here merely to ensure that order is kept.

Mr. Sheldon: rose—

Mr. Bruce-Gardyne: I am not giving way again. I have given way extensively during this speech and my previous speech. I have given way a great deal more frequently than the right hon. Gentleman was prepared to give way. I do not wish to delay the House much longer. I believe that hon. Members wish to reach a conclusion.
The right hon. Gentleman wanted an assurance that the Government would provide information about movements in National Loans Fund balances. That information is already available. The balance sheet of the banking department of the Bank of England is published every Friday in the Financial Times with respect to the previous Wednesday, and it also appears in table 1 of the public deposits in the Bank of England Quarterly Bulletin. The composition of the balances of the National Loans Fund is available in both those places.

Mr. Sheldon: Will the hon. Gentleman give way? The hon. Gentleman has not answered my question.

Mr. Bruce-Gardyne: I have answered the question. I shall not give way to the right hon. Gentleman again. I have given way several times. I believe that the House wishes to come to a conclusion.
I accept fully that it is right for the House to examine closely the powers that the Government seek, especially in new clause 1. I submit that we are not breaking new ground. We are essentially eliminating two artificial obstacles to the achievement of our monetary and exchange market intervention policies, as the need may arise. I do not know how many times the right hon. Gentleman has to be told, before he believes it, that we are not operating an exchange rate policy.
My right hon. and learned Friend the Chancellor of the Exchequer has made it clear time and again that, while we need to observe the performance of the exchange rate as a guide to the general condition of monetary policy, our intervention is confined to smoothing the movement of the rate in either direction. The right hon. Gentleman has been told this many times. If he looks at the record, he will see that the actual outturn of the exchange rate has conformed to what my right hon. and learned Friend said.
6.15 pm
It is nonsense for the Opposition to complain in the over-colourful similes of the right hon. Member for Ashton-under-Lyne that monetary policy is dead. On the contrary, it is just as senseless to attack the Government for killing off or abandoning monetary policy as it is to accuse us, as is done frequently in the same breadth, of being obsessive over one statistic of monetary policy. We are paying attention, as my right hon. and learned Friend has made clear, to the three major aggregates—not all six as the right hon. Gentleman maintained—of M1, sterling M3 and PSL2. We are also paying attention to the course of interest rates and to the movement of the exchange rate. All these factors tell us that the counter-inflation policy is moving in the direction that we seek.
The answer to the right hon. Member for Ashton-under-Lyne is that inflation has fallen and is falling. It is falling a great deal faster than the right hon. Gentleman and many others predicted at the time of the Budget. In this way we shall rebuild a sound future for the British economy. To enable us to achieve that purpose effectively and smoothly, we need the new clauses. I hope that hon. Members will give them a fair wind.

Question put, That the clause be read a Second time:—

The House divided: Ayes 278, Noes 218.

Division No. 262]
[6.17 pm


AYES


Adley, Robert
Biggs-Davison, Sir John


Aitken, Jonathan
Blackburn, John


Alexander, Richard
Blaker, Peter


Alison, Rt Hon Michael
Body, Richard


Amery, Rt Hon Julian
Bonsor, Sir Nicholas


Arnold, Tom
Bottomley, Peter (W'wich W)


Aspinwall, Jack
Bowden, Andrew


Atkins, Rt Hon H.(S'thorne)
Boyson, Dr Rhodes


Atkins, Robert(Preston N)
Braine, Sir Bernard


Atkinson, David (B'm'th,E)
Bright, Graham


Baker, Nicholas (N Dorset)
Brinton, Tim


Banks, Robert
Brittan, Rt. Hon. Leon


Beaumont-Dark, Anthony
Brooke, Hon Peter


Bendall, Vivian
Brotherton, Michael


Bennett, Sir Frederic (T'bay)
Browne, John (Winchester)


Benyon, Thomas (A'don)
Bruce-Gardyne, John


Benyon, W. (Buckingham)
Bryan, Sir Paul


Berry, Hon Anthony
Buchanan-Smith, Rt. Hon. A.


Bevan, David Gilroy
Buck, Antony


Biffen, Rt Hon John
Budgen, Nick





Bulmer, Esmond
Hunt, John (Ravensbourne)


Burden, Sir Frederick
Irvine, Bryant Godman


Butcher, John
Jenkin, Rt Hon Patrick


Cadbury, Jocelyn
Jessel, Toby


Carlisle, John (Luton West)
Johnson Smith, Sir Geoffrey


Carlisle, Kenneth (Lincoln)
Jopling, Rt Hon Michael


Carlisle, Rt Hon M. (R'c'n)
Joseph, Rt Hon Sir Keith


Chalker, Mrs. Lynda
Kershaw, Sir Anthony


Channon, Rt. Hon. Paul
Kimball, Sir Marcus


Chapman, Sydney
King, Rt Hon Tom


Churchill, W. S.
Knight, Mrs Jill


Clark, Hon A. (Plym'th, S'n)
Knox, David


Clark, Sir W. (Croydon S)
Lamont, Norman


Clarke, Kenneth (Rushcliffe)
Lang, Ian


Cockeram, Eric
Latham, Michael


Colvin, Michael
Lawrence, Ivan


Cope, John
Lawson, Rt Hon Nigel


Costain, Sir Albert
Lee, John


Cranborne, Viscount
Lennox-Boyd, Hon Mark


Critchley, Julian
Lester, Jim (Beeston)


Crouch, David
Lewis, Kenneth (Rutland)


Dorrell, Stephen
Lloyd, Ian (Havant &amp; W'loo)


Douglas-Hamilton, Lord J.
Lloyd, Peter (Fareham)


Dover, Denshore
Loveridge, John


du Cann, Rt Hon Edward
Luce, Richard


Dunn, Robert (Dartford)
Lyell, Nicholas


Durant, Tony
Macfarlane, Neil


Eden, Rt Hon Sir John
MacGregor, John


Eggar, Tim
MacKay, John (Argyll)


Elliott, Sir William
Macmillan, Rt Hon M.


Eyre, Reginald
McNair-Wilson, M. (N'bury)


Fairbairn, Nicholas
McNair-Wilson, P. (New F'st)


Fairgrieve, Sir Russell
Major, John


Faith, Mrs Sheila
Marland, Paul


Farr, John
Marten, Rt Hon Neil


Fell, Sir Anthony
Maude, Rt Hon Sir Angus


Fenner, Mrs Peggy
Mawby, Ray


Finsberg, Geoffrey
Mawhinney, Dr Brian


Fisher, Sir Nigel
Maxwell-Hyslop, Robin


Fletcher, A. (Ed'nb'gh N)
Mayhew, Patrick


Fletcher-Cooke, Sir Charles
Mellor, David


Fookes, Miss Janet
Miller, Hal (B'grove)


Forman, Nigel
Mills, Iain (Meriden)


Fowler, Rt Hon Norman
Mills, Sir Peter (West Devon)


Fox, Marcus
Miscampbell, Norman


Fraser, Rt Hon Sir Hugh
Mitchell, David (Basingstoke)


Fraser, Peter (South Angus)
Moate, Roger


Fry, Peter
Montgomery, Fergus


Gardner, Edward (S Fylde)
Moore, John


Garel-Jones, Tristan
Morris, M. (N'hampton S)


Glyn, Dr Alan
Morrison, Hon C. (Devizes)


Goodhart, Sir Philip
Mudd, David


Goodhew, Sir Victor
Murphy, Christopher


Goodlad, Alastair
Myles, David


Gorst, John
Neale, Gerrard


Gow, Ian
Needham, Richard


Grant, Anthony (Harrow C)
Nelson, Anthony


Gray, Hamish
Neubert, Michael


Greenway, Harry
Newton, Tony


Griffiths, E.(B'y St. Edm'ds)
Normanton, Tom


Griffiths, Peter Portsm'th N)
Nott, Rt Hon John


Grist, Ian
Onslow, Cranley


Hamilton, Hon A.
Oppenheim, Rt Hon Mrs S.


Hamilton, Michael (Salisbury)
Osborn, John


Hampson, Dr Keith
Page, John (Harrow, West)


Hannam, John
Page, Richard (SW Herts)


Haselhurst, Alan
Parkinson, Rt Hon Cecil


Havers, Rt Hon Sir Michael
Parris, Matthew


Hawksley, Warren
Patten, John (Oxford)


Hayhoe, Barney
Pattie, Geoffrey


Heddle, John
Pawsey, James


Heseltine, Rt Hon Michael
Percival, Sir Ian


Higgins, Rt Hon Terence L.
Pink, R. Bonner


Hill, James
Pollock, Alexander


Hogg, Hon Douglas (Gr'th'm)
Porter, Barry


Holland, Philip (Carlton)
Prentice, Rt Hon Reg


Hordern, Peter
Price, Sir David (Eastleigh)


Howell, Rt Hon D. (G'ldf'd)
Proctor, K. Harvey


Howell, Ralph (N Norfolk)
Pym, Rt Hon Francis


Hunt, David (Wirral)
Raison, Rt Hon Timothy






Rathbone, Tim
Stewart, Ian (Hitchin)


Rees, Peter (Dover and Deal)
Stokes, John


Rees-Davies, W. R.
Stradling Thomas, J.


Renton, Tim
Taylor, Teddy (S'end E)


Rhodes James, Robert
Tebbit, Rt Hon Norman


Rhys Williams, Sir Brandon
Temple-Morris, Peter


Ridley, Hon Nicholas
Thatcher, Rt Hon Mrs M.


Ridsdale, Sir Julian
Thomas, Rt Hon Peter


Rifkind, Malcolm
Thompson, Donald


Roberts, M. (Cardiff NW)
Thorne, Neil (Ilford South)


Roberts, Wyn (Conway)
Thornton, Malcolm


Rossi, Hugh
Townend, John (Bridlington)


Rost, Peter
Townsend, Cyril D, (B'heath)


Royle, Sir Anthony
Trippier, David


Rumbold, Mrs A. C. R.
Trotter, Neville


Sainsbury, Hon Timothy
van Straubenzee, Sir W.


St. John-Stevas, Rt Hon N.
Vaughan, Dr Gerard


Scott, Nicholas
Viggers, Peter


Shaw, Giles (Pudsey)
Waddington, David


Shelton, William (Streatham)
Wakeham, John


Shepherd, Colin (Hereford)
Waldegrave, Hon William


Shepherd, Richard
Walker, Rt Hon P.(W'cester)


Shersby, Michael
Waller, Gary


Silvester, Fred
Walters, Dennis


Sims, Roger
Ward, John


Skeet, T. H. H.
Warren, Kenneth


Smith, Dudley
Watson, John


Smith, Tim (Beaconsfield)
Wells, Bowen


Speed, Keith
Wells, John (Maidstone)


Speller, Tony
Wheeler, John


Spence, John
Whitney, Raymond


Spicer, Jim (West Dorset)
Wickenden, Keith


Spicer, Michael (S Worcs)
Wilkinson, John


Sproat, Iain
Winterton, Nicholas


Squire, Robin
Wolfson, Mark


Stainton, Keith
Young, Sir George (Acton)


Stanbrook, Ivor
Younger, Rt Hon George


Stanley, John



Steen, Anthony
Tellers for the Ayes:


Stevens, Martin
Mr. Selwyn Gummer and


Stewart, A.(E Renfrewshire)
Mr. Robert Boscawen.


NOES


Abse, Leo
Cowans, Harry


Allaun, Frank
Cox, T. (W'dsw'th, Toot'g)


Alton, David
Craigen, J. M. (G'gow, M'hill)


Archer, Rt Hon Peter
Crowther, Stan


Ashley, Rt Hon Jack
Cryer, Bob


Ashton, Joe
Cunliffe, Lawrence


Atkinson, N.(H'gey,)
Cunningham, G. (Islington S)


Bagier, Gordon A.T.
Cunningham, Dr J. (W'h'n)


Barnett, Guy (Greenwich)
Dalyell, Tam


Barnett, Rt Hon Joel (H'wd)
Davidson, Arthur


Beith, A. J.
Davies, Rt Hon Denzil (L'lli)


Benn, Rt Hon Tony
Davis, Clinton (Hackney C)


Bennett, Andrew(St'kp't N)
Davis, Terry (B'ham, Stechf'd)


Bidwell, Sydney
Deakins, Eric


Booth, Rt Hon Albert
Dean, Joseph (Leeds West)


Boothroyd, Miss Betty
Dewar, Donald


Bradley, Tom
Dixon, Donald


Bray, Dr Jeremy
Dobson, Frank


Brown, Hugh D. (Provan)
Dormand, Jack


Brown, R. C. (N'castle W)
Dubs, Alfred


Brown, Ronald W. (H'ckn'y S)
Duffy, A. E. P.


Brown, Ron (E'burgh, Leith)
Dunnett, Jack


Buchan, Norman
Dunwoody, Hon Mrs G.


Callaghan, Jim (Midd't'n &amp; P)
Eadie, Alex


Campbell, Ian
Eastham, Ken


Campbell-Savours, Dale
Edwards, R. (W'hampt'n S E)


Canavan, Dennis
Ellis, R. (NE D'bysh're)


Carmichael, Neil
English, Michael


Carter-Jones, Lewis
Ennals, Rt Hon David


Cartwright, John
Evans, John (Newton)


Clark, Dr David (S Shields)
Ewing, Harry


Clarke, Thomas C'b'dge,A'rie
Faulds, Andrew


Cocks, Rt Hon M. (B'stol S)
Fletcher, Ted (Darlington)


Cohen, Stanley
Foot, Rt Hon Michael


Coleman, Donald
Ford, Ben


Concannon, Rt Hon J. D.
Forrester, John


Cook, Robin F.
Foster, Derek





Foulkes, George
O'Halloran, Michael


Fraser, J. (Lamb'th, N'w'd)
O'Neill, Martin


Garrett, John (Norwich S)
Orme, Rt Hon Stanley


Garrett, W. E. (Wallsend)
Owen, Rt Hon Dr David


Ginsburg, David
Palmer, Arthur


Golding, John
Park, George


Graham, Ted
Parker, John


Grant, John (Islington C)
Parry, Robert


Hamilton, W. W. (C'tral Fife)
Pavitt, Laurie


Hardy, Peter
Race, Reg


Harrison, Rt Hon Walter
Radice, Giles


Hart, Rt Hon Dame Judith
Rees, Rt Hon M (Leeds S)


Hattersley, Rt Hon Roy
Richardson, Jo


Haynes, Frank
Roberts, Albert (Normanton)


Healey, Rt Hon Denis
Roberts, Allan (Bootle)


Heffer, Eric S.
Roberts, Ernest (Hackney N)


Hogg, N. (E Dunb't'nshire)
Roberts, Gwilym (Cannock)


Holland, S. (L'b'th, Vauxh'll)
Robertson, George


Homewood, William
Robinson, G. (Coventry NW)


Hooley, Frank
Rooker, J. W.


Horam, John
Roper, John


Howell, Rt Hon D.
Ross, Ernest (Dundee West)


Hoyle, Douglas
Ross, Stephen (Isle of Wight)


Hughes, Mark (Durham)
Rowlands, Ted


Hughes, Robert (Aberdeen N)
Ryman, John


Hughes, Roy (Newport)
Sever, John


Janner, Hon Greville
Sheerman, Barry


Jay, Rt Hon Douglas
Sheldon, Rt Hon R.


Jenkins, Rt Hon Roy (Hillh'd)
Shore, Rt Hon Peter


John, Brynmor
Short, Mrs Renée


Johnson, James (Hull West)
Silkin, Rt Hon J. (Deptford)


Johnson, Walter (Derby S)
Silkin, Rt Hon S. C. (Dulwich)


Jones, Rt Hon Alec (Rh'dda)
Silverman, Julius


Jones, Barry (East Flint)
Skinner, Dennis


Kaufman, Rt Hon Gerald
Soley, Clive


Kerr, Russell
Spearing, Nigel


Kilroy-Silk, Robert
Stallard, A. W.


Lamond, James
Steel, Rt Hon David


Leadbitter, Ted
Stewart, Rt Hon D. (W Isles)


Leighton, Ronald
Stoddart, David


Lestor, Miss Joan
Stott, Roger


Lewis, Ron (Carlisle)
Strang, Gavin


Litherland, Robert
Straw, Jack


Lofthouse, Geoffrey
Summerskill, Hon Dr Shirley


Lyons, Edward (Bradf'd W)
Thomas, Dafydd (Merioneth)


Mabon, Rt Hon Dr J Dickson
Thorne, Stan (Preston South)


McCartney, Hugh
Tinn, James


McDonald, Dr Oonagh
Torney, Tom


McElhone, Frank
Urwin, Rt Hon Tom


McGuire, Michael (Ince)
Varley, Rt Hon Eric G.


MacKenzie, Rt Hon Gregor
Wainwright, E.(Dearne V)


Maclennan, Robert
Wainwright, R.(Colne V)


McNally, Thomas
Weetch, Ken


McTaggart, Robert
Wellbeloved, James


McWilliam, John
Welsh, Michael


Magee, Bryan
White, Frank R.


Marks, Kenneth
White, J. (G'gow Pollok)


Marshall, Dr Edmund (Goole)
Whitehead, Phillip


Marshall, Jim (Leicester S)
Whitlock, William


Martin, M(G'gow S'burn)
Willey, Rt Hon Frederick


Mason, Rt Hon Roy
Williams, Rt Hon A.(S'sea W)


Maxton, John
Williams,Rt Hon Mrs (Crosby)


Maynard, Miss Joan
Wilson, Gordon (Dundee E)


Mellish, Rt Hon Robert
Wilson, William (C'try SE)


Mikardo, Ian
Winnick, David


Millan, Rt Hon Bruce
Woodall, Alec


Miller, Dr M. S. (E Kilbride)
Woolmer, Kenneth


Mitchell, Austin (Grimsby)
Wrigglesworth, Ian


Morris, Rt Hon A. (W'shawe)
Wright, Sheila


Morris, Rt Hon C. (O'shaw)
Young, David (Bolton E)


Morton, George



Moyle, Rt Hon Roland
Tellers for the Noes:


Newens, Stanley
Mr. James Hamilton and


Oakes, Rt Hon Gordon
Mr. Allen McKay.

Question accordingly agreed to.

Clause read a Second time, and added to the Bill.

New Clause 2

VARIABLE RATES OF INTEREST FOR GOVERNMENT LENDING

`(1) For section 5 of the National Loans Act 1968 (rates of interest) there shall be substituted the following section:—

"Rates of interest

5.—(1) This section has effect as respects any rate of interest—

(a) which under any provision in Schedule 1 to this Act is to be determined in accordance with this Act, or
(b) which is to be determined by the Treasury under section 3 of this Act,

and, where any enactment passed after this Act provides for the payment of interest on advances or loans made out of the National Loans Fund, and for the rate at which that interest is to be payable to be determined or approved by the Treasury, then, except as otherwise expressly provided, this section has effect as respects that rate of interest.

(2) For any loan or class of loans the Treasury may determine or approve either—

(a) a fixed rate of interest, that is to say a specified rate or a formula rate which is to be applied, throughout the period of the loan or any loan of that class, with the value which it has when the loan is made, or
(b) a variable rate of interest, that is to say a formula rate which is to be applied, for each of the successive periods of the loan or any loan of that class which are of a length specified in the determination or approval (in this section referred to as interest periods), with the value which it has at the beginning of that period;

and in this subsection "formula rate" means a rate which is so expressed (whether by means of a formula or otherwise) that it will or may have different values at different times.

(3) The Treasury shall, on each occasion when they determine or approve a fixed rate of interest for a loan or class of loans, satisfy themselves that the rate would be at least sufficient to prevent a loss if—

(a) the loan, or any loan of that class,—

(i) were made forthwith, and
(ii) were met out of money borrowed by the Treasury at the lowest rate at which the Treasury are for the time being able to borrow money (of whatever amount) for a comparable period, and on other comparable terms, and

(b) the interest on the money so borrowed, together with the Treasury's expenses of borrowing, were set off against the interest received on the loan.

(4) The Treasury shall, on each occasion when they determine or approve a variable rate of interest for a loan or class of loans, satisfy themselves that the rate would be at least sufficient to prevent a loss if—

(a) the loan, or any loan of that class,—

(i) were made forthwith,
(ii) were to be repaid at the end of its first interest period, and
(iii) were met out of money borrowed by the Treasury at the lowest rate at which the Treasury are for the time being able to borrow money (of whatever amount) for a comparable period, and

(b) the interest on the money so borrowed were set off against the interest received on the loan.

(5) If at any time the Treasury are satisfied that a rate of interest determined or approved for a class of loans, or for a loan not yet made, would not meet the requirements of subsection (3) or, as the case may be, subsection (4) above if it were determined or approved at that time, that determination or approval shall be withdrawn; and another rate shall be determined or approved in accordance with that subsection for further loans of that class or, as the case may be, for that loan.

(6) The Treasury may in determining or approving a rate of interest take into account any consideration justifying a rate higher than that required by subsection (3) or (4) above.

(7) Different fixed rates of interest may be determined or approved in respect of loans which are to be made for the

same length of time; and different variable rates of interest may be determined or approved for loans which are to have interest periods of the same length.

(8) The Treasury shall cause—

(a) all rates of interest determined from time to time by them in respect of local loans, and
(b) all other rates of interest determined from time to time by them otherwise than by virtue of subsection (6) above,

to be published in the London and Edinburgh Gazettes as soon as may be after the determination of those rates."

(2) The enactments amended by Schedule 1 to that Act (government lending and advances) shall have effect as if in the third column of that Schedule for the word "fixed", wherever it occurs, there were substituted the word "determined".

(3) In subsection (9) of section 47 of the Housing (Financial Provisions) Act 1958 (loans for certain housing purposes) for the word "prescribed" there shall be substituted the word "determined".

(4) In subsection (5) of section 20 of the Crown Agents Act 1979 (grants and loans by Minister) for the words "section 5(2) of the National Loans Act 1968 (criteria for fixing" there shall be substituted the words "section 5(3) and (4) of the National Loans Act 1968 (criteria for determining".—[Mr. Bruce-Gardyne.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 3

CAR TAX: REDUCTION FOR MOTOR CARAVANS

`In subsection (2) of section 52 of the Finance Act 1972 (car tax) after the words "10 per cent. of" there shall be inserted the words—

"(a) in the case of a caravan, three-fifths of its wholesale value; and
(b) in any other case".'.—[Mr. Bruce-Gardyne.]

Brought up, and read the First time.

Mr. Bruce-Gardyne: I beg to move, That the clause be read a Second time.
The purpose of the new clause is to reduce the value for car tax of a motor caravan to 60 per cent. of the value which would otherwise apply under section 52 and paragraph 11 of schedule 7 to the Finance Act 1972. This will exclude from the value for car tax the element of the cost of the vehicle which relates to living and sleeping accommodation and associated fittings present in a motor caravan. Trailer caravans are not subject to the tax.
I remind the House that, since 1975, motor caravans have been chargeable vehicles for car tax purposes under section 52 of the 1972 Act. The effective tax rate on such vehicles is therefore 24·6 per cent.—that is, car tax at 10 per cent. and VAT at 15 per cent. It has been drawn to our attention, and was argued strongly on behalf of motor caravan manufacturers, that this compares unfavourably with the taxation on trailer caravans which, as the House will know, are subject to VAT only. Up to 1975, the disparity had been the other way round. Trailer caravans were then liable to VAT at the higher rate of 25 per cent., whereas the motor caravan was chargeable with car tax at 10 per cent. of wholesale value plus VAT at the standard rate, which was then 8 per cent. The abolition of the higher rate of VAT and the raising of the standard rate to 15 per cent. in June 1979 tilted the balance heavily against the motor caravan.
The point was put to us that it is unfair that the caravan content of the motor caravan should bear car tax when it would not do so on a trailer caravan. It is, therefore, proposed in the new clause to exclude this element from


the value for car tax purposes of the motor caravan. We accept that a fair case has been made for a concession to the industry, which has gone through considerable difficulties during the past 10 years. While we do not accept that the incidence of car tax was a major factor in those difficulties, we accept that it is a fair point that the existing treatment has been somewhat inequitable between the motor caravan and the trailer caravan.
I therefore commend the new clause to the House. I believe that it will be of value to the industry, and is justifiable on that ground.

Mr. Robert Sheldon: We welcome the new clause. It is clear that motor caravans have been taxed more than they should have been for a long time now. Of course, they are not quite as common in this country as they are, for example, in the United States. We recognise, too, the element of holiday travel, which is probably on a par with showmen's vehicles, on which we deliberately impose a lower rate of tax because we realise that they are not on the road all the year. Nor are motor caravans. This is therefore a useful new clause, and we give it our blessing.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 33

RELIEF IN RESPECT OF CERTAIN INCOME OF TRADE UNIONS

'(1) In section 338 of the Taxes Act (which, as amended by section 57(3) of the Finance Act 1980, provides for exemption for income and gains of a trade union precluded by Act or rules from assuring to any person a sum exceeding £2,000 by way of a gross sum or £416 a year by way of annuity if the income or gains is or are applied for purpose of provident benefits) for "£2,000" and "£416" there shall be substituted respectively "£2,400" and "£500".

(2) Subsection (1) above has the effect in relation to income or gains which are applicable and applied as mentioned in the said section 338 on or after 1 June 1982.'.—[Mr. Brittan]

Brought up, and read the First time.

The Chief Secretary to the Treasury (Mr. Leon Brittan): I beg to move, That the clause be read a Second time.
This clause has been tabled in fulfilment of the promise that I gave in Committee in replying to a new clause that was moved by the hon. Member for Edinburgh, Central (Mr. Cook). I said at that time that the hon. Gentleman's new clause had considerable merit and was justified, although it was technically deficient. This new clause seeks to enact its principle in a proper form.
Trade unions are entitled to relief from corporation tax on as much of their income in capital gains as is applied to the payment of provident benefits to their members. However, to qualify for that relief, the trade union must be precluded by its rules from assuring lump sums or annuities exceeding specified amounts. In other words, the relief is intended to enable the provision of modest lump sums or annuities, and not very large ones. The present limits of £2,000 for the lump sum and £416 a year for the annuity were set in 1980. The Government accept that it is right that those figures should now be uprated to £2,400 and £500 respectively. That is a small but helpful additional relief which will assist trade unions in providing for their members, during sickness following an accident, by way of superannuation, and so on.
I am glad that the matter was brought to our attention by the hon. Member for Edinburgh, Central, that it has

been possible to accept what he put forward, and that the Government can now move the new clause implementing his proposal.

Mr. Robin F. Cook: As the Chief Secretary said, this new clause results from a new clause which the Opposition tabled in Committee. We attempted to achieve the same purpose as the Government's new clause, but we went about it in what proved legally to be a somewhat flatfooted manner. We willingly withdrew our new clause in Committee when the Chief Secretary gave an undertaking to return to the matter on Report, and I now express our appreciation to him for having accepted our proposal and brought forward a less flatfooted and perhaps more elegant way of achieving our objective.
The new clause provides for a modest uprating of what are modest sums. I am certain that both sides of the House agree that the purposes for which these funds are established are eminently worthy, and the new clause will help to assist those who run the funds in maintaining a modern level of benefit.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 42

VARIATION OF TERMS OF REPAYMENT OF CERTAIN LOANS

'(1) If relevant loan interest payable by a qualifying borrower—

(a) is payable under a loan agreement requiring combined payments, and
(b) is payable to a qualifying lender who, in accordance with subsection (5) below, is specified for the purposes of this section, and
(c) is interest on a loan made before 1st April 1983, or if it is interest in respect of which the Board have notified an earlier date to the lender under paragraph 2(5) of Schedule 7 to this Act, before that earlier date,

then, subject to subsection (2) below, the terms of repayment of the loan are by virtue of this section varied in accordance with subsection (3) below.

(2) Subsection (1) above does not apply to any combined payment unless—

(a) the qualifying lender concerned has, in accordance with regulations, given notice to the qualifying borrower that this section is to apply to combined payments which the borrower is required to make under the loan agreement; and
(b) the qualifying, borrower has not, in accordance with regulations, given notice to the qualifying lender that he wishes to continue with combined payments which, allowing for any sums he is entitled to deduct by virtue of section 25 above, do not exceed the combined payments which he would have been required to make but for the provisions of that section.

(3) Where subsection (1) above applies, the amount of any combined payment payable by the qualifying borrower concerned which includes a payment of the relevant loan interest shall be determined by the lender so as to secure, so far as practicable,—

(a) that the principal and interest repaid over the period which is for the time being agreed between the lender and the borrower; and
(b) that, unless there is a change in that period or in the basic rate of income tax or in the rate of interest charged by the lender, the amount of each net payment due from the borrower to the lender will be of the same amount;

and for the purposes of paragraph (b) above a "net payment" means a payment which, so far as it is a payment of interest, consists of interest from which the sum provided for by section 25(1) above has been deducted.

(4) Where the qualifying borrower gives a notice under subsection (2)(b) above, the amount of any combined payment


payable by him which includes a payment of relevant loan interest and the period over which the principal and interest on the loan are to be repaid shall be determined by the lender so as to secure, so far as practicable, that, unless there is a change in the basic rate of income tax or in the rate of interest charged by the lender,—

(a) the amount of each net payment, as defined in subsection (3) above, which is due from the borrower to the lender will be of the same amount; and
(b) the amount of each such payment does not exceed what, apart from section 25 above, would have been the amount of the first combined payment payable by the borrower after the date referred to in subsection (1)(c) above, less tax at the basic rate for the year 1983–84 on so much of that combined payment as would have consisted of interest;

but nothing in this section or in the loan agreement shall prevent the borrower from making, at such time or times as he chooses, additional repayments of capital of any amount so as to secure that the principal and interest on the loan are repaid within a period which is shorter than that referred to in subsection (3)(a) above.

(5) A building society within the meaning of the Building Societies Act 1962 or the Building Societies Act (Northern Ireland) 1967 is by virtue of this subsection specified for the purposes of this section; and the Treasury may by order by statutory instrument specify any other qualifying lender or class of qualifying lender for the purposes of this section.

(6) The giving of a notice under paragraph (a) or paragraph (b) of subsection (2) above does not affect the right of the qualifying lender and the qualifying borrower to vary, by agreement, the terms on which interest or capital or both is to be repaid.

(7) In this section—

"loan agreement" means an agreement governing the terms of payment of interest and repayment of capital of a loan the interest on which is relevant loan interest;
"combined payment" means one of a number of regular payments which are attributable in part to repayment of capital and in part to payment of interest; and
"regulations" means regulations made by the Board under section 27 below;

and other expressions have the same meaning as in section 25 above.'.—[Mr. Ridley.]

Brought up, and read the First time.

The Financial Secretary to the Treasury (Mr. Nicholas Ridley): I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 50, 51, 53, 54 and 55.

Mr. Ridley: The amendments are consequential upon new clause 42 and amend clause 27.
The new clause is tabled in response to the arguments in Committee by the hon. Member for Islington, South and Finsbury (Mr. Cunningham) and others, who believed that the new arrangements for mortgage interest relief might put unfair pressures on existing borrowers. They were not happy about the letter which the Building Societies Association sent to some members of the Committee. The relevant sentence of that letter was:
If a borrower would prefer to see his net payment held constant at its present level, then a society would be prepared to offer the alternative of having the mortgage extended".

Mr. George Cunningham: I have still not received that letter.

Mr. Ridley: I shall be delighted to send the hon. Gentleman my copy. The letter is superseded by the new

clause. Following our debate in Committee, the Revenue and the Building Societies Association discussed the matter further and the new clause was suggested. The Government accepted the idea, although the new clause is almost 100 per cent. declaratory. It does not much change the law, but it makes clear the rights of both borrowers and lenders in relation to existing mortgages.
If there is no approach from a lender—and the clause is restricted to building societies in this context—the terms of an existing mortgage cannot be changed. If a building society wishes to write to a lender and suggest a change, if the borrower agrees, the change can take place. If he does not, the change does not have to take place.
The clause contains four options upon which the borrower and lender can agree. The first option is to accept the constant repayment system, which would mean a small increase in the annual payment in the early years, although probably less overall, discounting inflation. The second option is to stay with the present outlay and extend the mortgage term by a few years. That would result in a higher overall cost. The third option is to stay with the present outlay and later increase the repayment of capital so that the total mortgage is completed and repaid on the same time scale as at present. That amounts to remaining as at present. The fourth option is to adopt any other mutually agreed system.
The new clause meets the arguments in Committee. It will be a great help to existing borrowers to know exactly their rights and options, and I commend it.

Mr. George Cunningham: When we considered the issue in Standing Committee I asked that the new legislation in the Bill should not come into force until the Treasury had agreed with the building societies how the building societies would operate the scheme, and until they agreed to operate it differently from the way that they intended. I said then that the Government should put whatever pressure they could on the building societies to get them to do one of two things: either to get them to say that they would do what I have described—maintain a rising profile—or, failing that, to agree that if a person asked he could have an arrangement whereby he would pay no more in the first three years, as a first-time buyer, than he would pay under the present system. I acknowledge with pleasure that the Government's new clause meets not only that request but goes beyond it by doing more in respect of existing borrowers. That is a qualification to which I shall return later.
Without the new clause, the position would have been serious—and politically serious. It would have meant that the first-time borrower on a normal mortgage of £15,000 over 25 years at 13½ per cent. would have had to pay over 5 per cent. more net than under the old system. A 5 per cent. increase in net outgoings for a first-time borrower is not negligible. If the person could not afford it, the introduction of the new system, described previously as an administrative change, would have meant that, instead of being able to borrow £15,000 at a given outlay, he would have been able to borrow only £14,205.
6.45 pm
For the existing borrower that would have meant that at the end of year 10 of a 25-year period on a £15,000 loan the change in the system next April would have negatived almost precisely the reduction in the interest rate from 15 per cent. to 13½ per cent. Under the old system, at the then 15 per cent. rate, the net monthly outgoing would have


been £141·79. When the interest rate fell to 13½ per cent., under the old system the net monthly outgoing fell to £130·41. With the change of system, without any change in the interest rate, the net monthly outgoing would have gone up to £141·26. The figures bear out my contention that the change in the system would for such a person have negatived the effect of a 1½ per cent. fall in the interest rate. The effect, although not so great, would have been as real for the average borrower at the end of year five of a 25-year period.
The change which is being effected—or, as the Minister would prefer to say, recorded, affirmed and publicised—is of real importance to the first-time borrower who has only just started a mortgage, and to a number of existing borrowers.
There is an element of obscurity, in my mind at least, because the Minister seems now to be saying that there would not have been any change in the incidence of cost on the borrower even without the new clause. He argues now that the arrangement which the building societies say that they would have operated could have operated only with the consent of the borrower. I can see that that might have been so, but it was not what the Government said at the time. The Government said that the way in which the new system was operated would be for the building societies to decide. They said that if the building societies wanted to operate it on a constant net cost basis they could. The Building Societies Association made it clear that its members proposed to operate it on that basis.
The discovery that the building societies would be able to do that only with the consent of individual borrowers is a new discovery since we debated the issue in Committee. At least it was kept quiet then, if the Minister was aware of it at all.
The disadvantage of the Government's proposal is that it applies only to existing borrowers. If the building societies intend to operate a constant net cost system, they are not required by the new clause to give it up in respect of any new borrower. A building society can say to a new borrower "The system involves constant net payments. You can take it or leave it."
The person who comes out best is the existing borrower. The person who does not benefit, at least by the terms of the legislation, is the new borrower—the person who does not yet have a mortgage. Yet it is the latter person whom we should be trying to help. It is the new borrower who works out the net burden that he can afford and therefore what he can afford to offer for the house.
It may be all right in the end. If the building societies are required by law—and in any case have agreed—to offer the four options to existing borrowers, in practice it may be that they will offer those four options to new and renewing borrowers. I hope so. If they do not, the new borrower, the person we are trying to help most, will not have an advantage from the new clause.
At present, building societies probably will offer the new options to new borrowers because the mortgage market is so competitive that attractive terms must be offered in order to get business at all. However, that will not necessarily last. We may revert to the situation when anyone wanting to borrow money to buy or improve a house has a hard task finding someone to lend it to him. It will be then that the test comes as to whether building societies are prepared to extend to the new borrowers the better conditions which will apply to existing borrowers.
I strongly hope that building societies, having been forced by discussion and legislation to go this far, will apply the better conditions to everyone. I express my appreciation to the Financial Secretary of the Treasury for his work in getting the building societies to go a long way further than they were prepared to go before our discussions in Committee.

Mr. Robert Sheldon: I welcome the new clause. Several disadvantages accompanied the new mortgage interest relief. As the hon. Member for Islington, South and Finsbury (Mr. Cunningham) pointed out, they were fairly serious disadvantages. However, the Government have gone a long way to meet some of the objections put forward, not least in regard to the first-time buyer as well as to others. They have allowed a wide range of options, such as constant repayments, the fixed amount due, the previously agreed term, and the permission to adopt any other arrangement.
The Government have done well to produce this solution to the problems that were brought forward and I welcome the new clause.

Mr. Ridley: I am grateful both to the hon. Member for Islington, South and Finsbury (Mr. Cunningham) and to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) for their welcome of the new clause. They both acknowledge that the arrangements for existing mortgages are now clearly acceptable.
I can only take hon. Members through the argument that a mortgage arrangement is a contract between the borrower and the lender and neither can vary that contract except by mutual agreement. That was always the position and why I was, perhaps, more relaxed about it than was the hon. Gentleman. If it is helpful to clarify and spell out in legislation the points that I have made, let us always try to be helpful if we can.
It is not right to say that the building societies were grudging about this. Discussions were accompanied by the problems arising out of computerisation and the switch to mortgage interest deductions at source. It was not immediately apparent how best the problems could be handled.
Of course, we rely upon competition. As has been said, competition with the banks is effective. I was delighted to hear the tribute that was paid to competition. That is how the best service is provided and why the Government are so keen on competition in all its aspects. I should hate to think that competition in the mortgage market might dry up. If it did, we should certainly have to see how it could be restored. If a building society does not offer favourable terms, there is always a bank or another institution. That is the right way forward. Because of the presence of the banks, building societies will have to meet the competition and adjust to their customers' needs.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 43

SUBSIDIARIES OF QUALIFYING COMPANIES

`(1) In subsection (1) of section 65 of the Finance Act 1981 (application of sections 52 to 67 of that Act to subsidiaries) for the words from "did not commence business" to the end there shall be substituted the words "and if any
subsidiary commenced business before the qualifying company did so, it was incorporated or (if later)


commenced business not more than five years before the date of issue of the shares in respect of which relief is claimed; and
(c) the subsidiary or each subsidiary complies with the requirements of subsections (2) to (6) of section 55 above.

(2) in paragraph 2(1) of Schedule 12 (modification of section 54 of the 1981 Act in relation to subsidiaries of qualifying companies) for the words from the beginning to "company if' there shall be substituted the following—

"(1) In subsections (2), (4) and (6) of section 54 references to the company (except, in each subsection, the first such reference) include references to a company which is during the relevant period a subsidiary of that company, whether it becomes a subsidiary before, during or after the year of assessment in respect of which the individual concerned claims relief and whether or not it is such a subsidiary while he is such an employee, partner or director as is mentioned in subsection (2) or while he has or is entitled to acquire such capital or voting power or rights as are mentioned in subsections (4) and (6).

(1B) Without prejudice to the provisions of section 54 (as it has effect in accordance with sub-paragraph (1) above), an individual shall be treated as connected with a company if—

(a) he has at any time in the relevant period had control (within the meaning of section 534 of the Taxes Act) of another company which has since that time and before the end of the relevant period become a subsidiary of the company; or
(b)"

(3) In paragraph 4 of that Schedule (modification of section 58 and 59 in relation to subsidiaries of qualifying companies) for the words "a subsidiary of the company" there shall be substituted the words "any company which during the relevant period is a subsidiary of that company, whether it becomes a subsidiary before or after the individual concerned receives any value from it,".

(4) After that paragraph there shall be inserted the following paragraph—
4A. In subsection (2) of section 59 (redemption etc. of shares by company) the references to the company (except the first) shall include references to a company which during the relevant period is a subsidiary of the company whether it becomes a subsidiary before or after the redemption, payment, repurchase or repayment referred to in that subsection.".'.—[Mr. Ridley.]

Brought up, and read the First time.

Mr. Ridley: I beg to move, That the clause be read a Second time.
The clause extends and improves the business start-up scheme. In order to keep within bounds the inevitable complexity of the start-up scheme when it was introduced, we provided for it to apply only to single independent companies. We were then pressed to allow the company to form a wholly-owned subsidiary. Section 65 and schedule 12 were added to the Bill during its passage through Parliament to provide for that purpose.
Those provisions do not entirely prevent the acquisition of companies, as opposed to their formation, but in practice they often have that effect. A condition of the present scheme is that the subsidiary company must not have started business before its parent.
Several cases have come to our attention in which investment would have been encouraged by the scheme were it not for the fact that relief is debarred by this condition. There are two examples. First, a new company may be formed—or already exist—to take over an existing company for the sake of its trade. After the acquisition, either it winds up the subsidiary and transfers the trade to itself, or it keeps the subsidiary in existence and both the parent and the subsidiary carry on qualifying new trades.
Secondly, an existing company that qualifies in every respect, save this one, may want to raise new capital, but it may previously, or later, have acquired a subsidiary that started to trade before it did so itself. In order to admit such cases we have disapplied the rule in question in this new clause, provided that before as well as after it became a subsidiary, the company was a qualifying new company and subject to the application of the rules relating to connected persons and the receipt of value from the company.

Mr. Robert Sheldon: I noted the examples given by the Financial Secretary. We have nothing against businesses in such conditions being catered for by the new clause.
The new clause is complicated, and it is not easy to see what other areas of activity it might embrace, given the possibility of certain interpretations in future. We shall need to study the consequences rather more carefully than some of the other matters that have come before us. However, in so far as the new clause deals with the points that have been put forward, we have no objection to it.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 44

ALLOWANCES FOR DWELLING-HOUSES LET ON ASSURED TENANCIES

`(1) The provision of Schedule (Capital allowances for dwelling-houses let on assured tenancies) to this Act shall have effect to provide for reliefs in respect of expenditure incurred on the construction of buildings consisting of or including dwelling-houses let on assured and certain other tenancies.

(2) Schedule (Capital allowances for dwelling-houses let on assured tenancies) to this Act has effect only where the expenditure concerned is incurred on or after 10th March 1982 and before 1st April 1987 or is deemed to have been so incurred by virtue of paragraph 8 of that Schedule.'.—[Mr. Brittan.]

Brought up, and read the First time.

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Mr. Brittan: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Paul Dean): With this it will be convenient to take Government amendment No. 153.

Mr. Brittan: The new clause fulfils the Chancellor of the Exchequer's promise—made in the Budget Statement—to give further encouragement to new private investment in housing for rent by introducing capital allowances for expenditure on the construction of properties for letting as assured tenancies.
I recognise that the clause and schedule are long. I am sorry that that should be so and that it should be necessary to table them at this stage. However, there is a legitimate reason. Until the decision had been made in the Budget speech to do any such thing, it was impossible to enter into any consultations. Consultations have now taken place. Inevitably, it has proved necessary to have a number of detailed rules for such a narrow, but important, scheme. However, most of them are technical and seek not to introduce any new, great principle, but to follow the relevant provisions of the industrial buildings allowance, which this new allowance mirrors quite closely.
I hope that the House will accept that no fundamental new principles lurk within that mass of technicalities. However, the provisions are necessary to follow the


pattern of the industrial building allowance and to provide the appropriate relief for the construction of properties for letting as assured tenancies. It may help if I highlight the main points.
The allowance is entirely new and is available in respect of dwellings let on assured tenancies by bodies approved by the Secretary of State for the Environment under the assured tenancy scheme introduced in the Houseing Act 1980. My hon. Friend the Minister for Housing and Construction gave details in a written answer last Friday of the bodies that have been approved and of further decisions and applications in relation to the approval of bodies for the scheme.
An initial allowance of 75 per cent. is proposed which, of course, is equal to that for the industrial buildings allowance. In addition, annual allowances in respect of the balance of 4 per cent. per year are proposed. That is an addition to what was mentioned in the Budget Statement, but again, it is equal to that for the industrial buildings allowance. The new allowance is to run for an experimental period of five years, from 10 March 1982 until 31 March 1987. It is to be available for all types of dwelling as long as the premises are let on assured tenancies, whether those premises are houses, maisonettes, flats or whatever.
However, it is important to note that there will be an upper limit on allowable expenditure. Where the value of a dwelling exceeds £40,000 outside London or £60,000 in Greater London the excess above those figures will not qualify for the allowances. Therefore, relief goes up to a limited point and is for a limited type of dwelling.
The provision of the new allowance will provide a valuable boost to the assured tenancy scheme. That scheme was imaginative and was designed by us to encourage the construction of property for renting to individuals at freely negotiated rents. This tax incentive will further encourage the construction of such properties. In addition, it will provide a further stimulus for the construction industry. It is one of a number of measures included in the Budget of which the principal measure in terms of impact is the extension of home improvement grants.
I stress the experimental nature of the scheme. It is an attempt to inject life into the private rented sector, which has been dormant for many years. It focuses on a section of that sector—the assured tenancy scheme, which is only two years old. Countries of diverse social patterns and political philosophies are united in agreeing that there are many people for whom the provision of private rented accommodation is of considerable value and importance. Provided that there is no scope for adverse consequences any steps that enable the private rented sector to revive must be commended to the House.
The Finance Bill does no more than build, in a small way, on the major initiative taken by the Secretary of State for the Environment and by my hon. Friend the Minister for Housing and Construction. Therefore, I hope that the new clause and the accompanying schedule will commend themselves to the House.

Mr. Cook: At the beginning of our proceedings my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) drew attention to the many Government amendments and new clauses that had been tabled at a late hour. Even among that great number, the new clause and amendment are distinguished. The amendment was tabled

last Wednesday. It takes up no fewer than nine pages of the Amendment Paper. The text is dense and appears complex to those who attempt to understand it. Moreover, the provisions are intimately related to the law on housing and rents. Those of us who have served on Committees considering rent Acts know that the area covered is one of fearsome complexity.
It is difficult to understand why the new clause should be tabled so late in our proceedings when, as the Chief Secretary said, it arises from a commitment given by the Chancellor of the Exchequer on 10 March 1982, four months ago. If the Chancellor of the Exchequer felt sufficiently far advanced in his considerations to give a commitment in his Budget speech, it is difficult to understand why it has taken the combined resources of the Department of the Environment and the Treasury four months to produce such an extraordinarily long new clause and schedule.
The Chief Secretary may be able to disabuse us of the unworthy suspicion that we are witnessing the publication of detailed and complex legislation at the very last minute in order, to put it mildly, not to assist the House in too great a scrutiny of the legislation's detail. Nevertheless, I must congratulate the Chief Secretary on his refreshing innovation of placing in the Vote Office the notes on clauses complete with part 2—which is marked "For the Minister's personal use only"—and with the note from the Minister for Housing and Construction, which I was pleased to read. I trust that that was a controlled experiment and not an uncontrolled error and that a precedent has been set for placing notes on clauses in the Vote Office. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) suggested that I should request that part 2 of the other notes on clauses should also be placed in the Vote Office for our consideration.
In the course of our proceedings on the Housing Bill 1980 my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) said that we would watch the development of the assured tenancies with interest. We noted that they were presented to the Committee by the Government as a controlled experiment. Our view, which was expressed in Committee, is that left to itself the introduction of assured tenancies will make little difference to the system of housing tenure and will do little to stimulate the prevision of property to let. I am tempted to conclude, from the publication of the new clause, that the Government share that view; otherwise it is difficult to see why they are bringing forward a provision that practically gives away the houses provided to create the assured tenancies. What evidence has there been that there was any probability of assured tenancies on any significant scale being provided had there not been the provision of the capital allowances under the new clause?
The second question we are entitled to ask the Chief Secretary is, leaving aside the lobbying from his hon. Friends in the Department of the Environment and regarding the matter as a Treasury Minister, what rationale can he find to provide capital allowances against corporation tax for this form of investment? The Chief Secretary will be well aware of the debates we have had in the past about capital allowances. Since capital allowances allow such a generous offset against corporation tax, our debates on them have taken up an increasing amount of time in the Finance Bill Committee.
The Chief Secretary will be aware that both his Government and previous Governments have defended a


system of giving allowances against industrial investment on two grounds. First, it stimulates investment which assists our industry to maintain competition with the industry of other countries, and provides jobs in Great Britain. Those considerations are not applicable in this case. The speculative developer in Great Britain is not in competition with a foreign developer. In any case, both of them would get the allowance under this arrangement. Nor does any house provided for an assured tenancy create permanent employment. It may provide employment during construction but it will not once the house is finished, unlike a factory. The whole point of providing building allowances to factories is to provide a place of permanent employment.
There is another equally irrelevant rationale. The Treasury in the past has defended the system of capital allowance and the 4 per cent. write-down on the basis that if industrial development is created the factory will deteriorate; its capital value will decline. It is therefore appropriate to give an allowance against that investment which is not available for investment for other buildings which appreciate in value. If the Chief Secretary lets through this capital allowance—a capital allowance relating to buildings which can be expected to appreciate in capital value—he will find himself in severe difficulty when he is next pressed by some of his hon. Friends on the Back Benches to extend similar capital allowances for hotels or many other purposes. I warn him that in departing from those rationales he is creating a dangerous precedent for himself.
When the assured tenancy scheme was introduced in Committee by the Minister, the Committee was led to believe that the bodies that would take advantage of it would be building societies and housing associations.
The Chief Secretary will be aware that last week the Minister for Housing and Construction gave a written answer in which he listed those bodies that had been recognised for the purposes of assured tenancy schemes. The list makes interesting reading. I cannot detect a single building society or more than one housing association. It lists companies such as Wates Limited, Barratt Developments PLC, Snowmountain Investments Limited, Oakmead Estates Limited, Tay Developments (Airedale) Limited, Eaton Square Properties Limited and Pattinson Estates Limited. The majority of the bodies offering themselves for approval—and succeeding in obtaining approval—for the purpose of assured tenancies are speculative property developers. What on earth is the Chief Secretary doing extending generous tax allowances to companies of that nature and extending capital allowances against corporation tax to those bodies when he is requesting the Department of the Environment to make further cuts in expenditure on any other form of housing investment?
That brings me back to the notes on clauses that were put in the Vote Office. Part 2—the public section, if I may put it that way—contains an entry on the top line which says: "Cost (to follow)." Has the cost followed, and may we have an estimate of how much will be lost to the Treasury because of those allowances?
7.15 pm
My last question relates to the density of the text used in the nine pages across which the schedule spreads. In

paragraph 4 of the schedule there is provision for balancing charges to be made where an assured tenancy building is sold after a capital allowance has been obtained. When the Chief Secretary introduced the new clause he stated that these provisions follow closely the standard provisions for balancing charges on industrial building allowances. This of course relates to an allowance that is in no way comparable to an industrial building allowance.
If a factory is subsequently sold, it is generally bought as a factory. It will rarely be acquired for another purpose. When a factory is acquired for continuing use, one would not anticipate any substantial change in its value. When a block of flats provided as an assured tenancy block of flats is subsequently sold for owner-occupation, there would be a substantial shift in the value of the property. It would be much higher as a block of flats for owner-occupation than it would be as a block of flats containing sitting tenants with some limited security of tenure under the assured tenancy scheme.
Will the provision in paragraph 4 of the new schedule prove satisfactory against the occasions when companies such as Wates and Barratts—companies that are in the business of providing houses for owner-occupation—provide a block of flats for assured tenancies, obtain a 75 per cent. capital allowance, and over a five-year period acquire the remaining 4 per cent. per annum, which takes them to a 100 per cent. allowance in five years and in the sixth year they sell that property for owner-occupation, possibly even to the tenants they had over the previous five or six years? In those circumstances, they may make a substantial profit that exceeds the original cost of constructing the building and on which they received a generous capital allowance.
It would help the House to judge how prodigal the provision will be if the Chief Secretary will explain how in those circumstances the balancing charge will be assessed. May we have a guarantee—I cannot see one in paragraph 4 of the schedule—that in those circumstances the Treasury will be able to recoup the entire amount of the 100 per cent. allowance that it has paid over the preceding five or six years?

Mr. Brittan: The hon. Member for Edinburgh, Central (Mr. Cook) prided himself on finding, whether by accident or design, all kinds of classified and secret material. I found that extremely interesting, and felt, at one point in his speech, that he had seen part 2 and had imagined that it was something other than it was, and had invented arguments to resist a possible Opposition new clause rather than to put forward a Government one.
When the hon. Gentleman talked about what would happen if we were asked in future years to extend this to hotels and all sorts of other buildings, I had a vision of him reading an official brief to resist an amendment on the basis of the danger of the precedent that it would set. Clearly, the hon. Gentleman is so ambitious for future advancement to the Government side of the Dispatch Box that he is capable not just of stating the argument but of inventing the official brief. On this occasion, however, the official brief was absent because this is essentially an experimental scheme for only five years. The building of hotels is not on the whole an experimental activity. Therefore, I need not worry unduly about the argument regarding precedent.
The essential argument for the new clause is quite different. The hon. Gentleman asked what was the


rationale for this form of investment, as it does not provide factories for employment and its value does not decline. The answer is that although it does not provide factories, it will provide houses for people who might otherwise not have them and a form of tenure that may he more convenient and suitable to them than local authority accommodation or owner-occupation.
It is no use shirking the fact that in every possible social sense a larger private rented sector is intensely desirable. The only reason why it does not exist now is because of the present limitations and regulations and the prospect that any changes enabling the private rented sector to come to the fore would be instantly negated by the threat of countervailing legislation by the Labour Party. That is the reality of the situation.

Mr. K. J. Woolmer: If the Chief Secretary cares so much about housing and if he is impartial as to the way in which it is provided, why does he not ensure that local authorities have more money for council house building? Is he aware that in Leeds there are 30,000 people on the council house waiting list? Why does he not get off his backside and do something about providing more money for local authority housing?

Mr. Brittan: I have. There is more money this year. However, we are not debating housing policy generally, nor am I talking about the total provision for housing. I am talking about the need, within whatever total amount is spent on housing, for a healthy private rented sector.
In the case of the assured tenancy—it is easy for me to say this as one who is not directly responsible for it—a valiant attempt has been made to find a way forward which would not run counter to the political prejudices of any section of the community and would enable an admittedly limited amount of private sector development to meet a social need. That is the justification and the rationale both for the introduction of the scheme and for its encouragement by fiscal means. I find no embarrassment, incongruity or inconsistency in, and every socially desirable need for, the introduction of this modest proposal.
The hon. Gentleman asked specifically about the sale of property at an enhanced value. If it is sold into owner-occupation within 25 years, the whole of the original capital allowance will be recovered. The cost of the scheme will be negligible in 1982–83, rising to £5 million in a full year.
On that basis and for those reasons, I commend the new clause to the House.

Mr. Cook: We have already made plain our position on assured tenancies. We shall let the experiment run and watch it with interest. In view of the comparatively small sum to which the Chief Secretary referred, however, it seems that, despite his conviction that this would be a good thing, he is not persuaded that large developments will come forward.
In the meantime, I invite the House to note that the result of the new clause, perverse though it may seem, will be to provide a far more generous subsidy for the construction of assured tenancy houses by private landlords than the Government are prepared to concede to local authorities which would willingly accept a subsidy enabling them to write off the capital cost of building a house within five years of its construction. Moreover, the Conservatives will provide this subsidy for housing on

which not one penny of public sector rent will be paid in any future year. I can only wonder at the Government's priorities. I am sure that my hon. Friends will bear in mind the prodigality of the Government in this respect next time we debate their attitude towards the public rented sector.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 46

MAINTENANCE FUNDS FOR HISTORIC BUILDINGS

'Schedule (Capital transfer tax: maintenance funds) to this Act shall have effect.'.—[The Solicitor-General.]

Brought up, and read the First time.

The Solicitor-General (Sir Ian Percival): I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 84 to 86, 96, 97, 103, 162, 109, 110, 114, 115, 117, 118, 138 to 140 and 154.

The Solicitor-General: The House will appreciate that we have now moved on to capital transfer tax. In Committee, the Government undertook to consider a number of points about the application of the new discretionary trust regime to heritage maintenance funds. I am happy to say that we have been able to meet all those points and propose to do so by means of the schedule inserted in the Bill through the combined effect of new clause 46 and amendment No. 154.
The schedule will bring together in one place all the relevant provisions, which will no doubt be most convenient for all concerned. First, it repeats clause 108 of the Bill. Secondly, it incorporates certain technical matters relating to the charges to tax on property leaving maintenance funds and the exemptions from that charge designed to prevent abuse. Thirdly, it provides for additional relief when property in a maintenance fund is paid out to the person who settles the fund or to his or her spouse. That effectively reproduces an exemption available in existing law. Finally, it provides detailed rules for calculating the rate of charge to tax on property withdrawn from a maintenance fund—again, to prevent any possibility of abuse. The last two items are included in fulfilment of specific commitments that I made to my hon. Friend the Member for Enfield, North (Mr. Eggar).
The provisions that I have described take the place of clause 109 which, together with clause 108, will be removed from the Bill. The other amendments in this group are consequential on the introduction of the new clause and schedule.

Mr. Eggar: First, I thank my hon. and learned Friend the Solicitor-General for being the most generous of all the Ministers who attended the Standing Committee. He has, I believe, given no fewer than seven concessions, which are greatly welcomed by the National Heritage Memorial Fund.
I have no wish to detain the House or to appear in any way churlish, but I am not entirely clear as to the reason for paragraph 8(8) and (9) of amendment No. 154. It would perhaps be better if I put the specific points to my hon. and learned Friend at length in writing so that he may have a chance to reflect on them. I am not clear why no time limit was placed on the power of the Inland Revenue Board to choose which of two or more settlors to refer back


to. Under section 80 of the Finance Act 1976 there was a time limit of 30 years. I shall, however, write to my hon. and learned Friend, and perhaps we may continue our discussion at some other time and place.

Mr. Robert Sheldon: The new clause and the lengthy new schedule take a great deal of digesting, but those who sat through the debates in Committee had to learn to make use of and accommodate digestion as best they could.
My only comment at this stage on the maintenance funds lies in paragraph 7 of the schedule which deals with the various rates over 40 complete successive quarters. I have examined it carefully in the light of our discussions in Committee, and it is probably as good a solution as we can achieve at this stage. There is no final point at which one can draw the line beneath all these matters. With that proviso, I welcome the new clause and the schedule.

The Solicitor-General: I thank the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) for his welcome, and I thank my hon. Friend the Member for Enfield, North (Mr. Eggar) for his contribution. I am sure that it would be for the convenience of the House if my hon. Friend were to raise his highly technical point in correspondence. It would be appreciated if he could do it briefly.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 47

SHARE OPTIONS ETC.: RESTRICTIONS ON INSIDER DEALING

`Paragraph 5 of Schedule 8 to the Finance Act 1973 and paragraph 18 of Schedule 10 to the Finance Act 1980 (certain matters deemed to be restrictions attaching to shares) shall each have effect and shall be deemed always to have had effect as if the reference in those paragraph to any contract, agreement, arrangement or condition did not include a reference to so much of any contract, agreement, arrangement or condition as contains provisions similar in purpose and effect to any of the provisions of the Model Rules set out in the Model Code for Securities Transactions by Directors of Listed Companies issued by the Stock Exchange in April 1981.'.—[Mr. Ridley.]

Brought up, and read the First time.

Mr. Ridley: I beg to move, That the clause be read a Second time.
New clause 47 covers a small point, but it is a relieving provision to remove the possibility of an unintended tax charge in the context of share acquisition schemes for employees. It covers the point that was raised in Committee by the hon. Member for Colne Valley (Mr. Wainwright), although not selected for debate as almost all his best amendments were.
I stress that the new clause does not in any way exempt a company's employees from the insider dealing rules. Those are the subject of Companies Act legislation. It merely removes an anomalous tax effect. In certain circumstances, restrictions—or conditions that can be regarded as restrictions if they are attached to shares held by an employee—give rise to an income tax charge. The main reason is to discourage artificial arrangements under which an employee or director could receive a benefit free of tax. Put at its simplest, his employing company could sell him shares subject to restrictions which would depress their market value. The restrictions could then be

removed, increasing the value. The employee would receive the benefit of the increase although he had in fact acquired the shares at market value and thus technically avoided any tax charge.
The Government have recently been advised that the Stock Exchange model code, which sets out the rules that listed companies should follow in relation to insider dealing, should in law be regarded for tax purposes as a restriction on shares if adopted by a company. That is unintended and unjustified, so we have tabled the new clause to remove the possibility of a compay which adopts the Stock Exchange's recommended rules on insider dealing thereby putting its employee shareholders at an unanticipated disadvantage.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 4

EXCHANGE CONTROL

`Within 12 months of the passing of this Act the Chancellor of the Exchequer shall publish in a White Paper his proposals for the re-imposition of Exchange Control.'.—[Mr. Shore.]

Brought up, and read the First time.

Mr. Shore: I beg to move, That the clause be read a Second time.
New clause 4 has been drafted to give the House the opportunity to debate a matter of major and growing national importance and at the same time to give the Chancellor every opportunity to make a measured response to what is an entirely reasonable, if to him an embarrassing, proposal.
New clause 4 provides the Chancellor with ample time—
Within 12 months of the passing of this Act"—
to reflect on the whole matter and to commit himself, in the first instance, to do no more than to publish a White Paper with proposals for the reimposition of exchange control. That allows time for consultation and for further debate, if it is thought necessary, before proposals are even firmed up in the form of a White Paper.
No hon. or right hon. Member will seriously dispute the importance of the subject with which we are dealing. Nor will many dispute that the sheer magnitude of the flows of capital—unhappily, flows of capital from the United Kingdom to other countries—is greater than the Chancellor and, indeed, many of his critics, could have predicted when the decision to abolish exchange control was taken just on three years ago. Since exchange controls had been in place since 1939, the consequences of abolition were wholly unpredictable as to the scale, composition and direction of the capital outflows involved.
The Chancellor's initial guesses were cautious, judging by his comments in Hansard in 1979 and 1980, but he clearly did not expect vast movements of money. Indeed, as recently as the February 1982 issue of the Treasury's bulletin, the Economic Progress Report, the whole presentation of the front page article on overseas investment and capital flows was meant to be reassuring. Yes, portfolio investment abroad had substantially increased, but that was assumed to be a once-for-all adjustment in the portfolios of institutions, and, above all, of the life insurance and superannuation funds.
The figures available in that document were up to the third quarter of 1981 and were substantially behind the


movement of events. Nevertheless, even on the figures given in that document, the combined portfolio and direct investment of British capital going overseas, which had totalled £3·8 billion in 1978, reached £5·7 billion in 1980 and looked like reaching, on the basis of the first three quarters of 1981, as much as £8 billion last year. That is a very substantial increase indeed and one in no way matched by any equivalent inflows of foreign capital into non-oil direct investment in United Kingdom industries or into United Kingdom share portfolios.
The figures from the Economic Progress Report 1982 appear seriously to have understated the trend and the reality. Table 9 of the June 1982 issue of Economic Trends shows significant differences, particularly for the figures for direct investment overseas. In the February issue it had been quoted at £2·6 billion in 1980 but in the latest issue of Economic Trends that figure is not £2·6 billion but £3·5 billion. In the first three months of 1981 direct investment was running at the rate of £4 billion but turns out to have reached £5·2 billion in 1981. Portfolio investment turned out to be much the same as had been forecast in the earlier document, reaching £4·2 billion in 1981. Of course, direct investment in manufacturing industry overseas and portfolio investment in overseas companies' shares are not the totality of our overseas investment, although they are very important components of it.
The total picture is worth looking at. As the balance of payments improved in 1978, Britain relaxed exchange controls considerably. That was a year in which there were far greater outflows of capital than there had been in previous years. In that year, we were exporting capital for all purposes at the rate of about £4·6 billion. Last year, two and a half years after the major decision first for a massive relaxation of exchange controls and then, shortly after that, their abolition, British capital was investing in various projects and purposes overseas at the rate of more than £11 billion per annum. In three years, our overseas investment increased from £4·6 billion to £11 billion—a difference of £6·5 billion. On the other hand, in the same period, the figures for overseas investment in the United Kingdom show no corresponding increase. Total overseas investment in the United Kingdom was running at £1·9 billion in 1978, and it reached only £2·9 billion in 1981. Thus, our adverse balance on capital account last year reached the enormous figure of £8·2 billion.
I have detailed those figures not only because, clearly, there has been some major and recent revision about which we should be given some explanation, especially the figures for direct investment overseas, but because the scale of our outflows and the adverse balance between capital imports and capital exports has deteriorated massively even since February 1982, when this bulletin was issued.
How do the Government defend their lack of action in the face of this vast exodus of British capital? First, we have the extraordinary statement that the capital outflows are natural and an inevitable consequece of our current account surplus. I have heard that said on both sides of the House. I find nothing natural or inevitable about it. The only reason why we have, I fear, a fast diminishing surplus on current account is the appalling depth and length of the recession that we are suffering. Without the export of North Sea oil, I doubt whether even now we should be in current account surplus. In any event, it is ridiculous to assert that a current account surplus must lead inevitably

to a capital account deficit. There is no reason why we should not be accumulating substantial reserves for our future benefit and use.
One of the other main excuses that the Government deploy when they turn their mind to this important subject is that the exodus of capital actually benefits the United Kingdom because, without these capital outflows, the exchange rate of the pound, given the balance of payments position and our North Sea oil assets, would be still higher than it is, thus making British industry even less competitive than otherwise.
It would be foolish to assert that the outflow of capital, especially on the scale that has now been achieved, has not had some effect in resisting the upward appreciation of the pound. But the Government are in no position to claim, nor do they make anything other than the most modest claim, that it has had any appreciable effect on the exchange rate. The truth is that, primarily owing to the high interest rate policy that the Government's obsession with monetary targets has entailed, the exchange rate of the pound has owed far more to domestic interest rates, themselves a consequence of Government policy, than to any other factor.
Nor have I met anyone who seriously contends that, if we reduced our own interest rates, as I for one believe we should, it would result in a more realistic, competitive and lower exchange rate for the pound than we have at present. It is a decision that the Government themselves can take if they are worried about the otherwise too high level of the pound that would flow from a proper regime of regulation of capital exports.
I shall not spend much time on the Government's third assertion, which is that the vast outflow is a once-for-all adjustment following 40 years of controls as financial insitutions have sought to reach the desired spread of their investments round the world That may have given some initial assurance to those who have watched the quadrupling of portfolio investment in the past three years. But we know nothing about what the managers of pension funds and long-term life funds believe to be a proper balance between British and overseas securities for their portfolio investments. This is entirely a matter for their judgment, and their judgment may well commit us and their policyholders to large further increases in overseas investment.
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What is incontrovertible is that the outflow of capital in this totally unregulated way and on this vast and growing scale has major and adverse effects on the British economy. The Government themselves do not contest that in itself it helps to sustain high interest rates. I have said already that it is the Government's monetary policy which is the primary determinant here, and it is. But no one can seriously doubt that with large outflows of British money overseas, the availability of capital to meet the reguirements of domestic borrowers is reduced substantially, and that must have the effect of pushing up interest rates. Even the February 1982 Treasury Economic Progress Report concedes in its conclusions that
perhaps some marginal upward impact on interest rates
has taken place.
Consequential upon what I have just said, the export of capital on this scale inevitably must have made more


difficult, and will make more difficult, the funding of the public sector borrowing requirement and the possibilities of British firms obtaining the capital that they require.
The Opposition do not accept the Government's argument about the public sector borrowing requirement crowding out private sector borrowing. But if the Government believe what they say about crowding out, I do not see how they can fail to acknowledge that if sums of money equal to the whole of our public sector borrowing requirement are exported each year from the United Kingdom, it must crowd out the borrowing of private sector institutions and, indeed, their own borrowing.
Not least in importance is that the great growth in direct investment overseas, principally in manufacturing enterprises of the subsidiary companies of British parent firms, in many instances is a major and direct threat to the prospects of United Kingdom manufacturing industry. It is a direct threat to the extent that such investment satisfies overseas markets which might otherwise have taken British exports. It is a further threat in that such enterprises export in competition with the exports of British-based establishments to third markets overseas.
I have already quoted the figure for direct investment overseas from Britain for last year. It rose from £2·7 billion in 1979 to £5·2 billion in 1981. In 1981, direct investment in United Kingdom manufacturing industry totalled £6·2 billion—there was only £1 billion more on investment in our own manufacturing base last year than we invested directly in equivalent and competitive industries overseas.
In the period between 1979 and 1981 we have seen a fall in real terms of 26 per cent. in investment in British manufacturing industry and, at the same time, an increase—I have to use the figure in money terms—of nearly 95 per cent. in overseas investment. That is a development and trend that carries with it the greatest threat to our future. To industrialise our competitors and to de-industrialise our own country is a recipe for national disaster.

Mr. Anthony Beaumont-Dark: Obviously, we need to invest in our own country. That is common sense. But in an age when international trade is of the essence, is there not much to be said on two counts for investing overseas some of our country's assets? The first is that it is essential to form an international set-up so that we can take advantage of internal markets. The second is that, when the oil runs out, it will be important to have investments overseas. I remind the right hon. Gentleman that we fought much of the Second World War on the basis of international sales of overseas assets. Why should overseas investment always be so wicked and unnecessary?

Mr. Shore: That is not so. I welcome what the hon. Gentleman said about it being common sense to look after one's own industries. That must not be overlooked. However, it is not our case that there should be no overseas investment. That would be an absurdity. There have been, there are and there will be, many occasions when it makes good sense for Britain to invest overseas, particularly in countries that operate tariff protection outside the GATT system and in other countries where distance and local factors make for the advantage of locally based

manufacture. However, it is our case that for industrial, employment and balance of payments reasons and reasons of obvious and manifest national interest it is essential that we should not allow a totally uncontrolled exodus of capital from this country.
It is for that reason that we have tabled the new clause calling upon the Government to review the development of their policies in the past three years, to recall the fact that we still have the legislation intact that will enable us to operate exchange controls, to look at the damage that has been done by the dismantling of the exchange control machinery and to make proposals to reimpose in appropriate and proper circumstances exchange controls.

Mr. Jay: Of all the follies in the Government's economic policy, I regard the gratuitous abandonment of exchange controls as the most damaging and ill advised in the past three years. Why was it necessary? After all, exchange control had been in force continually from 1939 to 1979 and, interestingly enough, through the whole of the 25 years when we enjoyed full employment. If there were any reason for taking that step in 1980, it would be that the Treaty of Rome enjoins the abolition of exchange control on all countries, although the Government did not use that excuse at the time.
It is not as if there were no overseas investment under exchange control. During the period of exchange control we did not have total abolition. There was a great deal of overseas direct and real investment in real assets by British companies as opposed to sheer flights of funds or portfolio investment overseas. I am in favour of much overseas investment of the direct kind, but that is different from an unrestricted outward flow regardless of the economic consequences.
There was a flaw in the second argument of the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). He gave us one reason for favouring overseas investment, which was that it gave the country a reserve of foreign exchange in time of war. However, if we had enjoyed the export surplus that enabled us to invest abroad and if the use of the overseas surplus did not take that form, it would have to take the form of an increase in the gold and exchange reserve of the central bank, which would have been a more valuable asset when war came. I assure the hon. Gentleman that in the Second World War the British Government would have been glad to have had the reserve in the form of gold and dollars rather than having to sell Courtauld's assets in the United States and causing a great deal of bad blood among everybody concerned.
Since that step was taken in 1980, as opposed to the controlled and sensible overseas investment in the previous 30 years, there was a colossal outflow of funds, which was greater than the Chancellor of the Exchequer had warned or had expected. As my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) said, in the past year or 18 months it has been running at about £8 billion or £10 billion a year. I hope that the Minister will tell us what the correct figure is. Those large figures are bandied about and it is difficult to know the exact figure. The investment is mainly not in productive assets overseas by British firms, which will then earn the resulting profits, but in all sorts of portfolio investment. Anyone in the City will tell us that it is the unit and investment trusts and the pension funds that have varied the destination of their investment over the past few years. The most serious


consequence has been the effect of raising interest rates and making them higher than they otherwise would be. If other things are equal and £10 billion of sterling funds is invested outside the country rather than in securities in this country, it is obvious to anyone that there must be a major effect on interest rates.
After the step was taken the Government invented an excuse for having taken it, which no one had suggested before, which was that as the exchange rate had become too high one way of bringing it down was to allow the outflow of funds. It is true that outflow of funds brings down the exchange rate, but one can bring it down by lower interest rates. How much more sensible that would have been. If, instead of this policy, the Government had retained exchange control and lowered interest rates, there would have been both a lower exchange rate and lower interest rates, which would have been of considerable advantage to British industry and employment.
What the Government have done is an extraordinary story. First, they let the exchange rate rise too high. Then they removed exchange control in order to keep the rate of exchange down. Now that the outflow in turn has caused the higher rate of interest, we are told that the interest rate must stay high to check the outflow, which was caused by the removal of exchange control. That is a remarkable example of gratuitously having the worst of all worlds. It means that the closures in British industry and the rise in unemployment in the past two years have been made worse than they would have been by the other elements in the Government's deflationary policy.
This is a sorry tale of making almost every error it is possible to make in economic policy. If support for the new clause can do anything to correct or amend that process, it will have a salutary result.

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Mr. Woolmer: My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) spoke with great care about exchange controls and I support his proposition that the time has now come to carefully examine the merits, or otherwise, of having freedom from exchange control and whether we should have an element of exchange control.
People do not realise that for every family in this country about £500 was invested abroad last year by British industry and financial institutions. With so many people being thrown out of work because capital is too expensive and not available for British jobs, those families must wonder whether the Government have their priorities right. That is the way families will look at the matter. Converting the billions of pounds into a figure such as £500 for the average family will get home to people just what such figures mean. If I told the unemployed workers in Batley that for each family £500 is being used to finance foreign jobs while they remain on the dole, they would wonder whether the Government have their head screwed on at all. Are the Government's policies right or wrong? When the hon. Gentleman replies he must explain matters in a way that makes sense to the ordinary person.

Mr. D. N. Campbell-Savours: Would it not be better to invite the Conservative Party to produce a party political broadcast to explain to the British people what is happening with investment overseas? The British people could then judge for themselves whether the Government are right or wrong. I challenge the Minister

to ask his party managers to produce a party political broadcast that tells the truth about investment. The hon. Gentleman may smile, but these are serious matters in our constituencies where thousands of people are out of work.

Mr. Woolmer: I am grateful to my hon. Friend. He anticipated my next remark. Of all the Government's achievements, or lack of them, this is, perhaps, the one of which we have heard least since the initial trumpeting with which it was introduced. I remember how Conservative Members greeted the removal of exchange controls with pleasure. That is never mentioned now in Conservative Party political broadcasts on television, or even in the press, as one of the plus points of Government policy.
Why has there been this large outflow of capital? I can imagine circumstances in which a country might regard it as sensible to have a completely free and unrestricted outflow of capital. A small Arab nation with a small population and huge oil supplies that produce resources that cannot be used internally would need to make massive investment abroad. Such resources could not be used in its own economy. However, if a country has high unemployment and a need for investment in its own industries, what sense is there in investing abroad? When we compare the economy of a small Arab nation with that of the United Kingdom it is obvious that we should be attempting to contain our capital and use it to create employment.
Why do we have a surplus? There are two reasons. First, we have had this big switch round in our oil revenues and oil surplus. We have an approximate turnround, within about three years—fortunately, in political terms, for this Conservative Government—of about £3½ billion to £4 billion on the current account of this country. Again converting that into figures that are readily understood, the Government have a family bonus of about £200 to £250 to play with in their economic policies. I wonder, in common with millions of others, what has happened to that bonus from North Sea oil that was to go towards growth, employment and rising living standards. The fact is that as the surplus became available, so production has gone down, unemployment has risen and the Government's economic policy has been reduced to tatters.
The second reason for the surplus is that we have had a balance, until last month, on non-oil trade. Our exports have exceeded imports. That can be a good thing when the economy is booming and exports are growing faster than imports. It represents a bonus for the country that the Government can consider using to the best effect. However, our surplus on non-oil trade is largely due to reduced imports arising from the deep recession into which the Government's monetary policies have thrown us. Imports have decreased to a greater extent than exports have risen. The Government blame world conditions for the domestic recession, but surely the deep slump in our own imports gives the lie to that. The paradox is that although the total volume of imports had been falling until recently, import penetration has been increasing. Faced with the latest trade figures, commentators have said that in the middle of a recession import growth is becoming a worrying feature. Our industry is unable to respond to even the small growth prospects that might occur in the next few years.
To summarise, therefore, the surplus arises from the oil revenues that the Government appear to have frittered away and the very depressed home market that has resulted


in fewer imports. The high outflow of capital has not been the result of economic strength and carefully considered policies but rather the failure of the Government to use North Sea oil revenues and manage the economy in the interests of our own people.
The trade surplus of about £8 billion and the massive outflow of British capital represent a lost opportunity for the British Government and the British economy. That capital outflow also represents the stark facts of unemployed factories, offices and workers. The surplus reflects a failure to expand the economy, to expand investment in the economy and to create job opportunities. If that capital had not been allowed to flow abroad, the pressure on British industry and British financial institutions to make better use of those funds in the British economy would have been enormous. Pension funds, insurance companies, banks and major British companies would not have tolerated the deflation in the home market. They would not have tolerated the Government's economic policies if they had been forced to look only in Britain to use their resources. The City of London and major British companies have been willing to tolerate the depression only because they could export capital abroad to get their profits.
Although financial institutions and large companies can overcome the Government's policies by exporting capital, the British worker cannot export his job. He has been left without capital and without a job. That is a further reason why we should support the new clause. It is common sense that we should look seriously at the new clause in the light of two or three years' practical experience.
The simple answer is to say that capital should not have gone to other countries, but should have been used for profitable investment in the United Kingdom. Most people would say that. However, as my right hon. Friend the Member for Battersea, North, (Mr. Jay) said, that is only part of the answer.
An expansionary economic policy is necessary, together with some restoration of exchange controls and a managed currency. The provision of profitable investment opportunities and the search for profitable investment opportunities are both required. These are not alternatives; they are complimentary. But by permitting a massive outflow of capital by industry, banks and financial institutions, the Government have enabled the City to ignore the needs of industry in the regions.
The Government have been ruled, in my view, by the City of London, and that is how it seems in industrial areas in Yorkshire. It looks as though we have a Government who care more about the status of the City of London than they do about the needs of unemployed workers and of the manufacturing industry in Yorkshire and Humberside. I am attempting to put before the House the position as it is seen by people to whom I speak when I travel around Yorkshire and other parts of the country. These are people who consider not high-flown theories but the reality of their own experience.
The Government have been ruled by the City of London, which is delighted with its total freedom, but that freedom has been bought at the price of misery, fear and the desperation of the dole queue. Who benefits from investment overseas? I agree with my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) that in many circumstances investment abroad is justified and

necessary. We are arguing not in terms of pure black and white but about how to balance the interests of different strands of policy.
Often it may be necessary to have direct investment abroad or some portfolio investment. It may be that foreign investment brings income, but income to whom? It may bring income, but it does not bring jobs. It is argued that foreign capital investment will eventually bring back flows of income, but on the whole the outflow tends, not surprisingly, to reflect the unequal distribution of wealth and capital, for how many people in my constituency could afford to invest £500 a year anywhere, let alone overseas? The Minister knows that very well.
The income that is going overseas is depriving all our workers of jobs, but the income that stays here benefits that part of the population with the greatest claim to the wealth and capital of Britain. Investment overseas does not provide jobs here, and surely that is one of the biggest needs.
I support the new clause. A balance of interests is required. Some capital outflow may be necessary and wise, but freedom to export capital must be tempered by the need to employ our own capital resources to produce British jobs. Few other countries afford themselves the luxury of having no exchange controls. No doubt other hon. Members have looked as carefully as I have at the parts of the annual report of the International Monetary Fund for 1981 dealing with exchange arrangements and exchange restrictions, and will have noted that Britain is among a remarkably select few countries which believe that they can throw aside the need to balance economic policies. There must be a proper balance between domestic needs and overseas needs.
I represent a constituency with 28 per cent. male unemployment, and with textile and engineering industries which have suffered massive recession in the last few years. I implore the Minister, on their behalf, to recognise that they desperately require British savings and British capital to be invested, as far as is humanly possible, in British factories and British jobs.

Mr. Campbell-Savours: I hope that the Minister will take up the challenge that I put to him a few moments ago. I think that the British people will be interested to learn about the Government's record in regard to internal investment and of their willingness to allow massive British funds to be channelled to our overseas competitors and into investment abroad.
My contribution will be in general terms, because my hon. Friends have dealt in great detail with the principles behind the dangerous and worrying statistics. I think that it would be in order for us today to extract from the Social Democratic Party a statement on where it stands on the issue of exchange control. I have here some remarks that were made by the hon. Member for Colne Valley (Mr. Wainwright) nearly three years ago when the statement about withdrawing the mechanism for exchange control was announced to the House by the Chancellor of the Exchequer. The hon. Gentleman said:
Is the Chancellor aware that his announcement will be very welcome to all who opposed the attempts to insulate Britain from the rest of the world? Will he confirm that if one of the early effects of his measures is to reduce somewhat the sterling exchange rate, that will be good news for the millions of our people engaged in the exporting industries?"—[Official Report, 23 October 1979; Vol. 972, c. 206.]


That unconditional support in 1979 by the Liberal Party for the ending of exchange controls requires a response from the Social Democratic segment of the Opposition. I hope that the SDP will make very clear tonight whether it supports an arrangement whereby vast sums of money can be transferred overseas at a direct cost to the Northern region and to people in other parts of Britain where unemployment is very high.
Several SDP Members represent constituencies in the Northern region in which there are particularly high levels of unemployment. Their constituents deserve to know whether their Members support the Liberals in the pursuit of the reckless export of money, which is removing job oppportunities in the Northern region and in the rest of the United Kingdom.
In my constituency there is a small town called Maryport. In pulling off the main road from Maryport to Workington, one comes to the Solway industrial estate. Today it is an industrial morgue. Almost every factory on that estate is closed. Only two remain, and one of them recently announced 95 redundancies, so only a handful of people will remain.
The people on that estate—indeed, people throughout the United Kingdom, as my hon. Friend the Member for Batley and Morley (Mr. Woolmer) said—demand to know why an investment strike is taking place in British industry and why the Government are recklessly permitting vast sums of money to be exported overseas. Government spokesmen may reply with high-falutin' economic arguments about the need to maintain high export levels, to manage the exchange rate and to arrange interest rates to comply with their monetarist strategy, but that means nothing to my constituents. They want to know why they cannot have work, why their factories are closed, why they cannot be accorded the human dignity of a right to a job and why large amounts of money are transferred overseas.
I ask the Economic Secretary to have a go at his party managers and to ask them to put out a party political broadcast to explain why investment in British industry last year was £1 billion less than direct investment in overseas competitors. That is an appalling statistic.
I understand that the net value of our assets abroad represents £1,000 for every working man in Britain and £9,000 for every man on the dole. The people demand that some of that money be brought home and used to get them back to work. When the hon. Gentleman replies, he should keep off his economic and statistical arguments and gear himself to the real worries of the people.
Mr. Arthur Scargill, a gentleman with whom I rarely agree, recently made an interesting comment that pleased me. He said that the National Coal Board's investment fund should be invested at home. I believe that there should be new legislation to ensure that a proportion of investing institutions' portfolios is based on domestic manufacturing industry so as to create jobs where they are needed. Mr. Scargill's suggestion had an immediate effect upon my constituents, and applications were made to the National Coal Board for funds to be made available to our region. I hope that other industries that manage large investment portfolios will respond to that call and recognise, in the spirit of patriotism for which the Prime Minister called during the Falklands conflict, that their money is needed for use in this country. The Government have a duty to ensure that that money is brought home as expeditiously as possible.
I do not say that all overseas investment should be brought to an end. During the term of the Labour Government, British industry invested overseas effectively behind a wall of exchange controls. If overseas investment worked then, it will work today. The hon. Gentleman must recognise that and not wrap up his reply with complacent words without understanding the needs of millions of British people.

Mr. Bruce-Gardyne: We have had an interesting and wide-ranging debate on the new clause but I must recommend that the House rejects it.

Mr. Woolmer: Shame.

Mr. Bruce-Gardyne: I can give a good reason straight away. The new clause asks the Government to produce a White Paper setting forth proposals for the reimposition of exchange control. As my right hon. and learned Friend has no intention of reintroducing exchange controls, such as a White Paper would be an expensive act of supererogation and we do not intend to produce it. In a nutshell, that is why I must urge the House to reject the new clause.
If I sat down now, I should be the subject of criticism from Labour Members, so I had better spend a few moments on the substance of the matter, which goes wider than the production of a White Paper. The basic reason why we have no intention of reintroducing exchange controls is that they are wholly ineffective in insulating this or any economy from the consequences of its actions and the impact of the international environment. The Labour Party had comprehensive exchange controls in 1976 that made not the slightest difference to the drama faced by the right hon. Member for Leeds, East (Mr. Healey), when he had to ditch his plane at Heathrow and come running back to London because the pound was disappearing out of sight.
The French Government have comprehensive exchange controls, but they have not enabled the French to insulate themselves from the consequences of market judgments about their monetary, interest rates and public expenditure policies, which they have been obliged to put into reverse because of the impact, notwithstanding the fact that they have exchange controls, on their exchange rate and hence on their domestic inflation prospects.

Mr. Jay: Would the Economic Secretary have argued that there was no purpose in exchange controls during the Second World War?

Mr. Bruce-Gardyne: War-time conditions do not—

Mr. Jay: Why?

Mr. Bruce-Gardyne: Under war-time conditions, one must have controls to ensure that people do not export capital to the enemy. That is just an example, but there are many cases in the special circumstances of war where such measures may be required. Our experience during the past 30 years has shown that, in insulating the British economy from the consequences of international market judgments on our monetary policies and performance, exchange controls have been wholly ineffective. The right hon. Gentleman would be the first to concede that perhaps the two largest elements in money flows are leads and lags and overseas inward and outward investment, which are not controlled by exchange controls. They are entirely outside the scope of the controls that we had for more than 40 years.
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that when the Labour Government had exchange controls it was a time of full emloyment. It did not look like that in the mid-1970s when unemployment doubled in two years. The existence of exchange controls then did not prevent the rapid escalation of unemployment. The Labour Party should recognise that the horrifying burden of unemployment that we face is the consequence of deep-rooted errors and follies perpetrated by successive Governments for many years. It has nothing to do with the abolition of exchange controls by this Government.

Mr. Straw: If it has nothing to do with the abolition of exchange controls and other decisions made by the Government, why has Britain moved from fourth place in the unemployment table in 1979, compared with the seven other major industrialised countries, to top place at more than two and a half percentage points above the United States of America? Why has our relative position changed so badly in the past three years?

Mr. Bruce-Gardyne: For a variety of reasons, the most important of which is the fact that in the preceding five years, while the real costs of employment doubled in Britain, the increases among our competititors were a fraction of the same rate. We increased vastly our lack of competitiveness. Those increases in labour costs came out of the profitability of private manufacturing industry.
The hon. Member for Batley and Morley (Mr. Woolmer) talked about the need to divert investment into profitable manufacturing industry. The hon. Gentleman has a good point. The trouble is that over the past decade or more the level of profitability in the corporate sector has been shrinking. That is the trend that we have to reverse. It is when we have reversed that trend that we shall see the prospects for genuine profitable investment. They are, unfortunately, not sufficient in this country at this time.

Mr. Woolmer: Does not the hon. Gentleman at least listen to the CBI, which has stated yet again the need for lower interest rates and the injection of investment into British industry? The hon. Gentleman can surely see that at least a part of the £10 billion that is going abroad would help to bring down interest rates and provide money to finance investment. If the hon. Gentleman does not agree with the Opposition, will he at least answer the argument of the CBI and stop whitewashing the subject? What the British public want to know is how he can justify a £10 billion capital outflow at a time of rising mass unemployment. The hon. Gentleman has not given an answer.

Mr. Bruce-Gardyne: It is difficult to give an answer if the hon. Gentleman intervenes at a point when I was about to deal with some of the arguments that have been advanced on the need to halt the outflow of investment, both direct and portfolio, that has occurred since the abolition of exchange controls. I can assure the hon. Gentleman that the Government, like the CBI, are anxious to see interest rates come down. But we have to make sure that interest rates come down in a manner that does not jeopardise the achievements of counter-inflation policies. Governments around the globe have discovered that it is

not possible entirely to insulate oneself, by exchange controls or any other device, from what is happening to interest rates.

Mr. Jay: rose—

Mr. Bruce-Gardyne: I have already given way once to the right hon. Gentleman. I think that I should make some progress. I must proceed to the main part of my argument if the right hon. Gentleman will forgive me.
The main burden of the argument is that the abolition of exchange controls has led to the diversion of investment from the United Kingdom to our competitors overseas. I was amazed to hear the right hon. Member for Stepney and Poplar (Mr. Shore) remark that, before my right hon. and learned Friend the Chancellor announced the abolition of exchange controls, no one had suggested that their abolition would help to produce an exchange rate that was lower than it would otherwise have been. I do not know what the right hon. Gentleman was reading at that period. I recall that never a week went by without eminent commentators, including Samuel Brittan and plenty of others, pointing out—

Mr. Straw: And leader writers on The Daily Telegraph.

Mr. Bruce-Gardyne: Possibly even leader writers on The Daily Telegraph. Certainly, many eminent commentators were pointing out that one of the most sensible way of ensuring that we were not artificially adding to the rise in the exchange rate was to abolish exchange controls. That was obvious. How the right hon. Gentleman can seriously ask the House to believe that the retention of exchange controls would not have led to a higher exchange rate passes my understanding.

Mr. Shore: The hon. Gentleman is contradicted by the facts. Following the abolition at a stroke of exchange controls, I think in October 1979, the pound continued its upward rise to the almost unbelievable level of nearly ․2·40 just over 18 months ago. Will he not agree that some other factors somewhere must be influencing the level of the pound? The hon. Gentleman well knows that there are measures both external to this country and also internal that contribute. The most important single internal fact that makes for the present rate of the pound is relative interest rates in the United Kingdom. He knows well that, if those were reduced, the pound would come down substantially.

Mr. Bruce-Gardyne: I am not saying that the abolition of exchange controls was calculated to lead to a fall in the value of the pound. I would not dream of making such a proposition, and I never said any such thing. However, I said that the abolition of exchange controls was calculated to ensure that the level of the pound would be below what it might otherwise have been. Probably the most important single reason for the rise in the level of the pound in early 1980 was the international perception, that we were an advanced industrial country with security of oil supplies at a time when the market was overwhelmingly preoccupied, following the second oil shock, with security of oil supplies. The fashionable thing to have at that time was oil. As we had it, that was bound to happen.
The proposition that I am putting to the House is that inevitably our exchange rates would have been higher then and higher today if we had still retained our controls of outward portfolio or direct investment. I concede to the


right hon. Gentleman that the reimposition of exchange controls might theoretically have some impact on our domestic interest rates. However, the impact might be highly perverse, because if the reimposition of exchange controls were adversely interpreted, as it might be by the international community, and if it were accompanied by the sort of propositions that the Labour Party put forward by way of so-called economic policies, it would have the impact of leading directly to the collapse of international confidence. Under those circumstances, the likelihood would be that interest rates would go up, not down. It is wrong to assume that the reimposition of exchange controls would lead to lower interest rates. It could mean that interest rates would be significantly higher than they had been.

Mr. Derek Foster: Is the Minister now denying his policies, such as excessively tight financial controls, and his then belief in the money supply and the PSBR? Is it not true that they were a major factor in pushing up interest rates to the 17 per cent. that we had? Was it entirely external practice? Did not his policies have a major impact?

Mr. Bruce-Gardyne: When the Government took office, against a background of rapidly accelerating inflation inherited from the Labour Government, it was necessary for us to take a grip on monetary policy and ensure that, through time, inflation was brought under better control, as we have succeeded in doing. I concede that the fact that we had a Government determined to bring inflation under control was a factor which encouraged overseas purchasers and others to purchase pounds. However, at that time and still today, the overwhelming priority was, and must be, to bring our inflation rate down to the sort of levels that the Germans have enjoyed over the years and which have been the foundation of their success and prosperity. That is the line that we should follow.
I want to refute the argument by the right hon. Gentleman and others that institutional portfolio investment overseas is diverting money from investment which otherwise would have gone into United Kingdom companies. There is no significant evidence to support that proposition. The proportion of institutional funds invested in United Kingdom company securities in 1981 as a whole was much the same as in previous years. In fact, new capital issues by United Kingdom companies rose by 20 per cent. in 1980, and by a further 60 per cent. in 1981. There is absolutely no evidence for the proposition that there is a shortage of finance for profitable projects.
The problem lies in the profitability of British manufacturing companies, which is far too low.

Mr. Foster: rose—

Mr. Bruce-Gardyne: No, I shall not give way again to the hon. Gentleman. The main shift in portfolio investment has been, not from investment in United Kingdom ordinary shares but, to a much more significant extent, from investment in United Kingdom Government securities. That is where the change has occurred.
The right hon. Gentleman asked about the figures. I do not quarrel with the figures that he gave, because they are the up-to-date figures, but the result of outward investment on this scale must be crowding out, to use a term that has been frequently used. However, he has not followed the

process through. When sterling is used for overseas investment, obviously it is sold for foreign currency. Other things being equal, that will tend to reduce the real exchange rate below what it would otherwise have been, thereby helping both output and competitiveness in this country, while increasing United Kingdom holdings of overseas assets and providing a source of foreign currency earnings in the future. The point was made time and again when we were approaching oil self-sufficiency that part of the logical response to that self-sufficiency had to be the building up of an overseas portfolio and direct investment by British industry and British investing institutions. That is the logical response to a period of substantial oil surplus. The hon. Member for Batley and Morley quoted the turnround, and it was a substantial turnround. If we had not allowed that turnround to be reflected in the build-up of direct and portfolio investment which occurred, inevitably it would have been reflected in the exchange rate.

Mr. Shore: The Minister has put his case and there is a certain cohesion in it. I do not say that there is no substance in it, but will he please understand that there are choices in economic policies? The Minister has described one chain of events that leads to investment overseas and the exchange rate appreciating, which would be damaging. If one takes the opposite direction and seeks to expand the economy and reduce interest rates an entirely different result is obtained. We think that that would be more beneficial to the country. We are asking the Chancellor to reconsider the experience. We are asking him to think again.

Mr. Bruce-Gardyne: I concede that the combination of policies that the right hon. Member for Stepney and Poplar and his colleagues suggest could lead to a substantial drop in the exchange rate. I was interested that the right hon. Gentleman's former colleague, the hon. Member for Southampton, Itchen (Mr. Mitchell) told the Treasury and Civil Service Select Committee the other day that the great thing about the Labour Party's economic policy was that it would create a collapse of confidence internationally and that that was the best thing that could happen. The trouble is that a collapse of confidence internationally is not controllable. As the right hon. Gentleman and his colleagues discovered in 1976, one suddenly gets to the point where not only can one not borrow at modest interest, but one cannot borrow at all. Then one has to reverse engines and recognise that unless one is prepared to give the priority that I concede that we have given to the conquest of inflation, the markets will force a rethink. The French Government have discovered that. I agree that there is an alternative, but it is not an alternative on which the Government intend to embark. I recommend the House to reject the new clause because it serves no purpose.

Mr. Cook: When the Minister was replying there were moments when I thought that we were about to make the historic discovery that the Government have an exchange rate policy. That has been denied at fortnightly intervals. The Economic Secretary sought to defend the abolition of exchange controls on the ground that it would enable the exchange rate to be held down.
The Economic Secretary's difficulty is twofold. If the Government's aim were to reduce the exchange rate and


to control some of the alarming lurches in the exchange rate witnessed in the last three years, there would be one simple and effective solution—to cut interest rates. Today we heard again the nonsense which the Government practise. They argue that they cannot cut interest rates because they need high interest rates to reduce inflation. It is manifest nonsense and an offence to reason to argue that the more one increases interest rates the more one reduces inflation. Plainly the more one increases interest rates the more one assists inflation to remain high and the more one curses British industry with the high interest rates that it has dragged round for the past three years.
The Economic Secretary has another problem. If he seriously contends that the abolition of exchange controls contributes to keeping down exchange rates he must face the fact that the Chancellor, when he made his statement in the House in October 1979, explicitly stated that he was not taking that step to affect the exchange rate. In reply to my right hon. Friend the Member for Leeds, East (Mr. Healey), he said that exchange controls
have been undertaken stage by stage, not with a view to influencing the exchange rate".
Just in case any hon. Member fails to grasp that point, when the hon. Member for Colne Valley (Mr. Wainwright) intervened, he received exactly the same reply:
this change is announced not with a view to influencing the exchange rate".
If the Chancellor of the Exchequer felt that it was necessary to spell out repeatedly that there was no intention to influence the exchange rate, it will not do to claim three years later, when the adverse consequences of the abolition of exchange controls can be seen, that that is why it was done—in justification of such a reckless step.
Two and a half years ago the Chancellor of the Exchequer said that he was abolishing exchange controls in order to remove a check on investment. He said that it was in order to remove
some of the restrictions that unjustifiably remain on investment decisions by"—
I like this touch—
our people."—[Official Report, 23 October 1979; Vol. 972, c. 204–6.]
It is precisely because the abolition of exchange controls removed that check on investment decisions that my hon. Friends have demanded in the course of the debate a White Paper and have spoken compellingly about the consequences of removing that check on investment decisions.
In a brief intervention in the speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) drew attention to the effect and relevance of exchange controls in wartime.
What has surprised Labour Members is the discovery that, in the Chancellor of the Exchequer there is, within the Cabinet, a closet unilateralist. A unilateral abolition of exchange controls is a unilateral dismantling of protection that many other nations have retained to control investment decisions by their people.
Not only does the Chancellor believe in unilateralism, but he has taken care to burn his bridges. We understand from the official in the Bank of England who was responsible for exchange controls—he is now no longer employed in the Bank—that the files have been destroyed

so that it will not be possible to have second thoughts. The Bank has dispersed the staff, who now meet only once a year for an annual knees-up. Everything has been done to make it more difficult to reimpose exchange controls should it become apparent—it has become increasingly apparent—that they served a useful function.
Painful though the duty may be, I am now obliged to turn to another part of the Economic Secretary's speech.

Mr. Campbell-Savours: Would it not be in order for the Minister to say whether some people in the former exchange control department have been retained and, if so, what their purpose is in that department?

Mr. Cook: We have not been privileged to receive the brief marked "For the attention of the Minister only". My understanding is that it is not the Treasury that is taking the sensible precaution of maintaining a small research staff to note what is happening, but the banks. That suggests to me that, among people who do not carry around the lumber of doctrine that the Ministers in the Treasury do, there is a pragmatic recognition that they have been needed for 35 years and there is an odds-on chance that, eventually, even this Government will realise their necessity again.
I was about to turn to another passage of the Economic Secretary's speech in which he claimed that one reason for abolishing exchange controls was that they were ineffectual; that they could not influence movements in the exchange rate. If that is so, it is incumbent on the Economic Secretary to explain why their abolition should have been followed by such a massive surge of capital out of Britain. How else can we account for the fact that in 1980 and again in 1981 we witnessed a massive flood of capital out of Britain that was unprecedented in any of the years of exchange control that preceded it?

Mr. Bruce-Gardyne: I did not say that exchange controls did not have an impact on direct and portfolio investment overseas. Of course they did. I did not argue that at all. My point was that they could not control the two major elements in flows across the exchanges—the movement of overseas funds, and commercial leads and lags. The idea that exchange controls enabled a country to insulate its economy from the outside world was a load of bunkum and was shown to be.

Mr. Cook: I am delighted that it should be on record that the Economic Secretary accepts that exchange controls can influence the movement of direct and portfolio investment. That is precisely the point that my hon. Friends made. If the Economic Secretary now accepts the premise on which they argued their case, he should in fairness—given my hon. Friends' impassioned speeches about the problems resulting in their constituencies from the lack of investment—accept the case for a White Paper so that we may know what has happened since 1979.

Mr. John Browne: Is the hon. Gentleman prepared to accept that, in considering the net figure for exchange flows out of Britain, he must first consider the effect of inflows? He has not taken them into account. In addition, the immediate outflow has followed many years of frozen investment in Britain. Therefore, there must be a legitimate reason for investment managers to diversify their portfolios. In the first two or three years following the abolition of exchange controls the outflow may not be any indicator of the general trend of investment.

Mr. Cook: I am grateful to the hon. Gentleman for his intervention because it has brought me to my next point. I welcome the hon. Gentleman to our debates. I always like to think that The Guardian's compositors had the hon. Gentleman in mind when they printed the statement that the Treasury was under pressure from Conservative "Bank" Benchers.
The hon. Gentleman has put forward an argument that was placed on record by the Chancellor of the Exchequer in October 1979. When the right hon. and learned Gentleman abolished exchange controls he said that abolition
is likely to lead to some capital outflows"—
hon. Members should notice the use of the word "some" and the bathos there—
across the exchanges out of this country, but it is just as likely to be matched by capital inflows in the opposite direction".—[Official Report, 23 October 1979; Vol. 972, c. 208.]
That is the point made by the hon. Member for Winchester (Mr. Browne). However, if the hon. Gentleman consults the figures—even those published in the Government's own publication British Business—he will find that that is far from being the case. Indeed, in the three years since the abolition of exchange controls outward investment has been double the level of inward investment. The figures for 1981 show that inflows collapsed so far that the ratio between outward and inward direct investment is now running at 6:1 for the export of capital from Great Britain.
That has not occurred after a period in which Britain was loth to export its capital. The Library has prepared figures showing the proportion of investment invested abroad by each of the major OECD countries. The United Kingdom is outstanding for the proportion of investment invested abroad. In 1980, we invested abroad 22 per cent. of all our investment. Japan invested abroad 0·6 per cent. of all investment. In 1980, no other nation exported abroad more than 5 per cent. of its total investment. We cannot hope to survive as a manufacturing nation in competition with other nations if we invest much more heavily in their economies than they invest in ours.

Mr. Foster: Given the figures that my hon. Friend has just cited, might there not be an imaginative new role for the Invest in Britain Bureau? It could actually encourage investment in Britain, instead of just encouraging others overseas to invest here.

Mr. Cook: My hon. Friend brings me conveniently to the next point, and that is the last justification that we have heard for the abolition of exchange control. The hon. Member for Selly Oak said that direct investment abroad can be of advantage in securing jobs in Great Britain. Let us examine that statement by looking at the companies that have invested abroad. In 1980, one-third of the direct investment abroad came from three companies making three major purchases—the decision by Grand Metropolitan Ltd. to buy the United States Ligett Corporation, the decision of Pilkington Brothers Ltd. to buy the German Flachglas company, and the decision by the Imperial Group to buy the Howard Johnson company chain of motels. When historians write about the decline of Great Britain's industry they will make a special footnote of the decision of one of our major manufacturing companies to make the purchase of a chain of ice cream parlours across North America its biggest investment.
9 pm
If we take the annual reports of those three companies and look at what happened, we find that for the most recent three years, employment in Grand Metropolitan has fallen by 5,400 jobs, employment in Pilkington Brothers Ltd. by 2,000–9 per cent. of the work force—and employment in the Imperial Group has fallen by 7,700 jobs. The companies that invest most abroad are cutting back most on jobs in Great Britain.
There are three lessons to be learnt from the Treasury's behaviour. It plainly does not believe in the crowding out theory. There were no empirical data to support that theory. It is evident that the Treasury never believed in the theoretical basis of the crowding out theory. If it did, how could it permit the flood out of Great Britain of capital in excess of the PSBR? Secondly, the Treasury has never believed that funding the PSBR was a problem that needed to constrain public expenditure. The Treasury connived at making it much more difficult to fund the PSBR because money has been going abroad. The Economic Secretary admitted that. The Bank of England Quarterly Bulletin report on the abolition of exchange control concludes that the extent to which the pension funds have increased their purchase of overseas securities is equally matched by a reduction in the extent to which they purchased Government gilts. The Treasury has made it more difficult to fund the PSBR and cannot now plead that it cannot expand public expenditure because of that difficulty.
The most wonderful thing of all is the number of times that we are told by both Front and Back Benches that, because of the lack of profitable opportunities in Great Britain, people are investing abroad. The Government have been in power for over three years. If there is a lack of profitable investment opportunity it is not something on which they can preen themselves—it is further damning evidence of the collapse and failure of their economic policies. It is also evidence that even their friends, the financiers in the City, are not convinced by the fairy stories of the forthcoming growth that will be the result of the policies. Their friends have been voting with their portfolios and taking them abroad. Some of their friends have done very well.
The true significance of the abolition of exchange control is that it has enabled a few wealthy people to divorce their financial interests from the economic fate of the rest of their countrymen. Although employment in United Kingdom manufacturing industry may go down the plughole they will be all right, because they will have the receipts from their foreign investments. We are witnessing yet another dimension of the two nations that right hon. and hon. Gentlemen on the Government Benches have been so busily creating. We find that dimension repugnant and we shall be voting against the removal of exchange control that has made that dimension possible.

Question put, That the clause be read a Second time:—

The House divided: Ayes 190, Noes 292.

Division No. 263]
[9.4 pm


AYES


Abse, Leo
Benn, Rt Hon Tony


Allaun, Frank
Bennett, Andrew(St'kp't N)


Archer, Rt Hon Peter
Bidwell, Sydney


Ashley, Rt Hon Jack
Booth, Rt Hon Albert


Ashton, Joe
Bray, Dr Jeremy


Atkinson, N.(H'gey,)
Brown, Hugh D. (Provan)


Bagier, Gordon A.T.
Brown, R. C. (N'castle W)


Barnett, Guy (Greenwich)
Brown, Ron (E'burgh, Leith)


Barnett, Rt Hon Joel (H'wd)
Buchan, Norman






Callaghan, Jim (Midd't'n &amp; P)
Kilroy-Silk, Robert


Campbell, Ian
Lamond, James


Campbell-Savours, Dale
Leadbitter, Ted


Canavan, Dennis
Leighton, Ronald


Carmichael, Neil
Lestor, Miss Joan


Carter-Jones, Lewis
Lewis, Ron (Carlisle)


Clark, Dr David (S Shields)
Litherland, Robert


Clarke, Thomas C'b'dge,A'rie
Lofthouse, Geoffrey


Cocks, Rt Hon M. (B'stol S)
McCartney, Hugh


Cohen, Stanley
McElhone, Frank


Coleman, Donald
McGuire, Michael (Ince)


Concannon, Rt Hon J. D.
McKay, Allen (Penistone)


Cook, Robin F.
MacKenzie, Rt Hon Gregor


Cowans, Harry
McTaggart, Robert


Cox, T. (W'dsw'th, Toot'g)
McWilliam, John


Craigen, J. M. (G'gow, M'hill)
Marks, Kenneth


Crowther, Stan
Marshall, Dr Edmund (Goole)


Cryer, Bob
Marshall, Jim (Leicester S)


Cunliffe, Lawrence
Martin, M(G'gow S'burn)


Cunningham, Dr J. (W'h'n)
Mason, Rt Hon Roy


Dalyell, Tam
Maxton, John


Davidson, Arthur
Maynard, Miss Joan


Davies, Rt Hon Denzil (L'lli)
Mikardo, Ian


Davis, Clinton (Hackney C)
Millan, Rt Hon Bruce


Davis, Terry (B'ham, Stechf'd)
Miller, Dr M. S. (E Kilbride)


Deakins, Eric
Mitchell, Austin (Grimsby)


Dean, Joseph (Leeds West)
Morris, Rt Hon A. (W'shawe)


Dewar, Donald
Morris, Rt Hon C. (O'shaw)


Dixon, Donald
Morton, George


Dobson, Frank
Moyle, Rt Hon Roland


Dormand, Jack
Newens, Stanley


Dubs, Alfred
Oakes, Rt Hon Gordon


Duffy, A. E. P.
O'Neill, Martin


Dunnett, Jack
Orme, Rt Hon Stanley


Dunwoody, Hon Mrs G.
Palmer, Arthur


Eadie, Alex
Park, George


Eastham, Ken
Parker, John


Edwards, R. (W'hampt'n S E)
Parry, Robert


Ellis, R. (NE D'bysh're)
Pavitt, Laurie


English, Michael
Race, Reg


Ennals, Rt Hon David
Radice, Giles


Evans, John (Newton)
Rees, Rt Hon M (Leeds S)


Ewing, Harry
Richardson, Jo


Fletcher, Ted (Darlington)
Roberts, Albert (Normanton)


Ford, Ben
Roberts, Allan (Bootle)


Forrester, John
Roberts, Ernest (Hackney N)


Foulkes, George
Roberts, Gwilym (Cannock)


Fraser, J. (Lamb'th, N'w'd)
Robinson, G. (Coventry NW)


Freeson, Rt Hon Reginald
Rooker, J. W.


Garrett, John (Norwich S)
Ross, Ernest (Dundee West)


Garrett, W. E. (Wallsend)
Ryman, John


Golding, John
Sever, John


Graham, Ted
Sheerman, Barry


Hamilton, James (Bothwell)
Sheldon, Rt Hon R.


Hamilton, W. W. (C'tral Fife)
Shore, Rt Hon Peter


Hardy, Peter
Short, Mrs Renée


Harrison, Rt Hon Walter
Silkin, Rt Hon J. (Deptford)


Hart, Rt Hon Dame Judith
Silkin, Rt Hon S. C. (Dulwich)


Hattersley, Rt Hon Roy
Silverman, Julius


Healey, Rt Hon Denis
Skinner, Dennis


Heffer, Eric S.
Soley, Clive


Hogg, N. (E Dunb't'nshire)
Spearing, Nigel


Holland, S. (L'b'th, Vauxh'll)
Stallard, A. W.


Home Robertson, John
Stewart, Rt Hon D. (W Isles)


Homewood, William
Stoddart, David


Hooley, Frank
Stott, Roger


Howell, Rt Hon D.
Strang, Gavin


Hoyle, Douglas
Straw, Jack


Hughes, Mark (Durham)
Summerskill, Hon Dr Shirley


Hughes, Robert (Aberdeen N)
Thomas, Dafydd (Merioneth)


Hughes, Roy (Newport)
Thorne, Stan (Preston South)


Janner, Hon Greville
Tilley, John


Jay, Rt Hon Douglas
Tinn, James


John, Brynmor
Torney, Tom


Johnson, James (Hull West)
Urwin, Rt Hon Tom


Johnson, Walter (Derby S)
Varley, Rt Hon Eric G.


Jones, Rt Hon Alec (Rh'dda)
Wainwright, E.(Dearne V)


Jones, Barry (East Flint)
Weetch, Ken


Kaufman, Rt Hon Gerald
Welsh, Michael


Kerr, Russell
White, Frank R.





White, J. (G'gow Pollok)
Woolmer, Kenneth


Whitlock, William
Wright, Sheila


Wigley, Dafydd
Young, David (Bolton E)


Willey, Rt Hon Frederick



Williams, Rt Hon A.(S'sea W)
Tellers for the Ayes:


Wilson, Gordon (Dundee E)
Mr. Frank Haynes and


Wilson, Rt Hon Sir H.(H'ton)
Mr. Derek Foster.


Winnick, David



Woodall, Alec



NOES


Adley, Robert
Durant, Tony


Aitken, Jonathan
Eden, Rt Hon Sir John


Alexander, Richard
Edwards, Rt Hon N. (P'broke)


Alison, Rt Hon Michael
Eggar, Tim


Alton, David
Elliott, Sir William


Amery, Rt Hon Julian
Ellis, Tom (Wrexham)


Arnold, Tom
Fairbairn, Nicholas


Aspinwall, Jack
Fairgrieve, Sir Russell


Atkins, Rt Hon H.(S'thorne)
Faith, Mrs Sheila


Atkins, Robert (Preston N)
Farr, John


Atkinson, David (B'm'th,E)
Fenner, Mrs Peggy


Baker, Nicholas (N Dorset)
Finsberg, Geoffrey


Banks, Robert
Fisher, Sir Nigel


Beaumont-Dark, Anthony
Fletcher, A. (Ed'nb'gh N)


Beith, A. J.
Fletcher-Cooke, Sir Charles


Bendall, Vivian
Fookes, Miss Janet


Bennett, Sir Frederic (T'bay)
Forman, Nigel


Benyon, W. (Buckingham)
Fowler, Rt Hon Norman


Best, Keith
Fox, Marcus


Bevan, David Gilroy
Fraser, Peter (South Angus)


Biffen, Rt Hon John
Fry, Peter


Blackburn, John
Gardner, Edward (S Fylde)


Blaker, Peter
Garel-Jones, Tristan


Body, Richard
Ginsburg, David


Bonsor, Sir Nicholas
Glyn, Dr Alan


Boscawen, Hon Robert
Goodhart, Sir Philip


Bottomley, Peter (W'wich W)
Goodhew, Sir Victor


Bowden, Andrew
Goodlad, Alastair


Boyson, Dr Rhodes
Gorst, John


Braine, Sir Bernard
Grant, Anthony (Harrow C)


Bright, Graham
Gray, Hamish


Brinton, Tim
Greenway, Harry


Brittan, Rt. Hon. Leon
Griffiths, E.(B'y St. Edm'ds)


Brooke, Hon Peter
Griffiths, Peter Portsm'th N)


Brotherton, Michael
Grist, Ian


Brown, Ronald W. (H'ckn'y S)
Grylls, Michael


Browne, John (Winchester)
Gummer, John Selwyn


Bruce-Gardyne, John
Hamilton, Hon A.


Bryan, Sir Paul
Hamilton, Michael (Salisbury)


Buchanan-Smith, Rt. Hon. A.
Hampson, Dr Keith


Budgen, Nick
Hannam, John


Bulmer, Esmond
Haselhurst, Alan


Burden, Sir Frederick
Hastings, Stephen


Butcher, John
Havers, Rt Hon Sir Michael


Cadbury, Jocelyn
Hawksley, Warren


Carlisle, John (Luton West)
Hayhoe, Barney


Carlisle, Kenneth (Lincoln)
Heddle, John


Carlisle, Rt Hon M. (R'c'n)
Heseltine, Rt Hon Michael


Cartwright, John
Hicks, Robert


Chalker, Mrs. Lynda
Higgins, Rt Hon Terence L.


Channon, Rt. Hon. Paul
Hill, James


Chapman, Sydney
Hogg, Hon Douglas (Gr'th'm)


Churchill, W. S.
Holland, Philip (Carlton)


Clark, Hon A. (Plym'th, S'n)
Horam, John


Clark, Sir W. (Croydon S)
Hordern, Peter


Clarke, Kenneth (Rushcliffe)
Howell, Rt Hon D. (G'ldf'd)


Cockeram, Eric
Howell, Ralph (N Norfolk)


Colvin, Michael
Hunt, David (Wirral)


Cope, John
Hunt, John (Ravensbourne)


Costain, Sir Albert
Irvine, Bryant Godman


Cranborne, Viscount
Irving, Charles (Cheltenham)


Crouch, David
Jessel, Toby


Cunningham, G. (Islington S)
Johnson Smith, Sir Geoffrey


Dickens, Geoffrey
Jopling, Rt Hon Michael


Dorrell, Stephen
Joseph, Rt Hon Sir Keith


Douglas-Hamilton, Lord J.
Kaberry, Sir Donald


Dover, Denshore
Kershaw.Sir Anthony


du Cann, Rt Hon Edward
Kimball, Sir Marcus


Dunn, Robert (Dartford)
Knight, Mrs Jill






Knox, David
Rhys Williams, Sir Brandon


Lamont, Norman
Ridley, Hon Nicholas


Lang, Ian
Ridsdale, Sir Julian


Latham, Michael
Rifkind, Malcolm


Lawrence, Ivan
Roberts, M. (Cardiff NW)


Lawson, Rt Hon Nigel
Roberts, Wyn (Conway)


Lee, John
Roper, John


Lennox-Boyd, Hon Mark
Ross, Stephen (Isle of Wight)


Lester, Jim (Beeston)
Rossi, Hugh


Lewis, Kenneth (Rutland)
Rost, Peter


Lloyd, Ian (Havant &amp; W'loo)
Royle, Sir Anthony


Lloyd, Peter (Fareham)
Rumbold, Mrs A. C. R.


Loveridge, John
Sainsbury, Hon Timothy


Luce, Richard
St. John-Stevas, Rt Hon N.


Lyell, Nicholas
Scott, Nicholas


Lyons, Edward (Bradf'd W)
Shaw, Giles (Pudsey)


Mabon, Rt Hon Dr J. Dickson
Shelton, William (Streatham)


Macfarlane Neil
Shepherd, Colin (Hereford)


MacGregor, John
Shepherd, Richard


MacKay, John (Argyll)
Shersby, Michael


Macmillan, Rt Hon M.
Silvester, Fred


McNair-Wilson, M. (N'bury)
Sims, Roger


McNair-Wilson, P. (New F'st)
Skeet, T. H. H.


McNally, Thomas
Smith, Dudley


Magee, Bryan
Smith, Tim (Beaconsfield)


Major, John
Speed, Keith


Marland, Paul
Speller, Tony


Marten, Rt Hon Neil
Spence, John


Maude, Rt Hon Sir Angus
Spicer, Jim (West Dorset)


Mawby, Ray
Spicer, Michael (S Worcs)


Mawhinney, Dr Brian
Squire, Robin


Maxwell-Hyslop, Robin
Stainton, Keith


Mayhew, Patrick
Stanbrook, Ivor


Mellor, David
Stanley, John


Miller, Hal (B'grove)
Steel, Rt Hon David


Mills, Iain (Meriden)
Steen, Anthony


Mills, Sir Peter (West Devon)
Stevens, Martin


Miscampbell, Norman
Stewart, A.(E Renfrewshire)


Mitchell, David (Basingstoke)
Stewart, Ian (Hitchin)


Moate, Roger
Stokes, John


Montgomery, Fergus
Stradling Thomas, J.


Moore, John
Tapsell, Peter


Morris, M. (N'hampton S)
Taylor, Teddy (S'end E)


Morrison, Hon C, (Devizes)
Tebbit, Rt Hon Norman


Morrison, Hon P. (Chester)
Temple-Morris, Peter


Mudd, David
Thomas, Rt Hon Peter


Murphy, Christopher
Thompson, Donald


Myles, David
Thorne, Neil (Ilford South)


Neale, Gerrard
Thornton, Malcolm


Needham, Richard
Townend, John (Bridlington)


Nelson, Anthony
Townsend, Cyril D, (B'heath)


Neubert, Michael
Trippier, David


Newton, Tony
Trotter, Neville


Normanton, Tom
van Straubenzee, Sir W.


Nott, Rt Hon John
Vaughan, Dr Gerard


Ogden, Eric
Viggers, Peter


O'Halloran, Michael
Waddington, David


Onslow, Cranley
Wakeham, John


Osborn, John
Waldegrave, Hon William


Page, John (Harrow, West)
Walker, Rt Hon P.(W'cester)


Page, Richard (SW Herts)
Waller, Gary


Parkinson, Rt Hon Cecil
Walters, Dennis


Parris, Matthew
Ward, John


Pattie, Geoffrey
Warren, Kenneth


Pawsey, James
Watson, John


Penhaligon, David
Wellbeloved, James


Percival, Sir Ian
Wells, Bowen


Peyton, Rt Hon John
Wells, John (Maidstone)


Pink, R. Bonner
Wheeler, John


Pollock, Alexander
Whitney, Raymond


Prentice, Rt Hon Reg
Wickenden, Keith


Price, Sir David (Eastleigh)
Winterton, Nicholas


Proctor, K. Harvey
Wolfson, Mark


Raison, Rt Hon Timothy
Young, Sir George (Acton)


Rathbone, Tim
Younger, Rt Hon George


Rees, Peter (Dover and Deal)



Rees-Davies, W. R.
Tellers for the Noes:


Renton, Tim
Mr. Anthony Berry and


Rhodes James, Robert
Mr. Carol Mather.

Question accordingly negatived.

New Clause 5

INTERNATIONAL TAX AVOIDANCE

Within 12 months of the passing of this Act the Chancellor of the Exchequer shall publish his conclusions on the comments on the draft legislation on International Tax Avoidance and his proposals to deal with this matter.".—[Mr. Straw.]

Brought up, and read the First time.

Mr. Straw: I beg to move, That the clause he read a Second time.
During the past few years a major new tax haven has come into existence. This tax haven has introduced such bountiful tax and exchange control legislation that it has left all of the others far behind. As one would expect, it provides the usual tax advantages for non-residents who wish to use it as a brass plate address. In addition, however, it has a series of beneficial tax laws—some of which can be found nowhere else in the world—that enable tax levels for its own residents to be kept below those in traditional havens such as Jersey and Monte Carlo.
This tax haven has no exchange control regulations so that money can move in and out of the country without awkward questions being asked. Unlike most tax havens, which are completely outside the network of double taxation agreements … this tax haven has the most extensive network of such agreements in the world. In addition to fiscal advantages, it offers a range of banking, legal, insurance and other financial services unparalleled anywhere else, and, even harder to believe, it combines all of these advantages with a reputation for financial respectability and integrity matched by no other country.
In case it is not already obvious, the fiscal paradise in question is none other than the United Kingdom.
All that comes not from a Labour Party publication but from the Economist intelligence unit special report No. 95, "The United Kingdom as a tax haven", which was published just a year ago. In its introduction, the report said:
The professional, financial and communications facilities available in London are so good that they make most tax havens look rather redundant. The respectability offered by being a UK company with a registered address and name-plate in London is also hard to beat. This is an advantage not enjoyed by, say, the Cayman Islands or Liechtenstein whose names tend, more than is usually considered desirable, to smack of tax avoidance—perish the thought".
The Government know only too well that the United Kingdom is an international tax haven. They also know that
the abolition of exchange control has removed a constraint on international tax avoidance.
Those words were exactly the words used by the Inland Revenue in its consultative document "Tax Havens and the Corporate Sector," published in January 1981. That document presented a well-argued case for immediate reform of the tax law relating to tax havens and the corporate sector. It said:
The use of tax havens for tax avoidance companies has shown a marked growth in recent years, and the Government is particularly concerned to counter avoidance of United Kingdom tax by the accumulation of profits and investment income of United Kingdom groups in tax haven subsidiaries.
A number of countries including the main trading competitors of the United Kingdom have introduced legislation which has regard to tax avoidance by way of income accumulations in tax haven subsidiaries. These countries include the United States, Germany, Japan, Canada and France".
At the same time as that document on tax havens in the corporate sector was issued a companion consultative document was issued entitled "Company Residence". It


discussed the fact that the rules providing a definition of company residence, which had been developed in the first two decades of this century, were inappropriate for today. It said:
The established criteria have not only become artificial with the passage of time and technical innovation. They also have enabled companies to arrange a residence for tax purposes which may bear little relation to the seat of the company's operations.
Those two documents presented a powerful case for changing the law. There followed consultations with all those who were likely to be affected by the changes. It will come as no surprise to anyone in the House to learn that on the whole the consultations suggested that the response to the changes would be hostile. That was not surprising because almost all those who responded to the consultative document had a direct vested interest in the present lax tax regime or they were here because the United Kingdom is the best tax haven in the world. In many ways the response was as predictable as if the Government had asked casino operators to agree to tax changes that reduced their share of the take.
None the less, the Inland Revenue took those detailed representations into account, which is plain from its publication of the draft clauses. In January this year, a full 12 months after the original consultative document was published, it published the draft clauses and stated that in a number of important respects it would modify some of its proposals. However, it made it clear that the Government were convinced that reform of this area of tax law was urgently needed.
In the light of the consultative documents, which were published with the authority of the Government and set out the Government's policy, and in the light of the draft clauses that repeated the Government's concern to act in this way, there was a clear expectation that the Chancellor of the Exchequer in his Budget would announce that the draft clauses or variations of them would go into the Finance Bill 1982 and take effect on 6 April 1983, as the Government had undertaken. None of the arguments that were used by the opponents of the proposals countered the principal arguments of the Revenue. For all the synthetic cries of the multinationals and their financial advisers in the City, they know only too well that the United Kingdom is a tax haven and that tax regulations in our major competitor countries—the United States, Germany, Japan, Canada and other countries—is tougher than in this country. Moreover, all the companies that are operating world-wide know that the tougher tax regimes in the countries of our major competitors have had no discernible adverse effect on the economies of those nations.
Indeed, if there were a direct connection between the laxity of a country's tax regime and economic growth, or between the extent to which a country was a tax haven and economic growth, the United Kingdom would be the strongest, fastest-growing country in the Western world. But the reverse is true. As my hon. Friend the Member for Grimsby (Mr. Mitchell) reminds me, we are at the head of the league table of countries that have the worst economic growth in the Western world and the worst unemployment. Despite the protestations of Ministers, we are nowhere near the top of the league table of countries that are managing to reduce inflation. On any indicator,

despite the extraordinarily lax regime, in the past three years Britain's performance has become the worst of the world's major economies.
We fully expected—because the Government had clearly pledged it—that major changes would be announced in the Budget, but instead the Government listened, as they have too often, to their friends and backers in the City—the one group to have made money out of the Government's economic policies of the past three years. In place of the determination of the Government to act upon what is plainly a scandal, we had in the Budget Statement mealy-mouthed words saying that the Government had considered the ideas very carefully. I hope they did, because they were the Government's own ideas. The Chancellor of the Exchequer whent on to say:
But they raised difficult questions of principle, and we are not persuaded that they offer the best solutions to the problems they are designed to solve."—[Official Report, 9 March 1982; Vol. 19, c. 752.]
So he kicked them into touch.
The purpose of the new clause is to require a statement from the Government—of much greater clarity than we were given in the Budget Statement—as to their intentions. Its purpose is to give the Government an opportunity to make it clear that they intend to deal with the scandal—for that is what it is—of Britain being the tax haven and tax avoidance capital of the world. It is a reputation which no self-respecting industrialised nation should either need or want. It is a reputation that the Government should act swiftly to remove, and it is in that context that I ask the House to support the new clause.

Sir William Clark: I trust that the Minister will resist the blandishments of the hon. Member for Blackburn (Mr. Straw). For him to stand at the Dispatch Box and say that Britain is the best tax haven in the world shows that he does not understand how our finances and institutions work. The hon. Gentleman should look at the history of the so-called consultations on these matters. A Green Paper was issued early last year and representations were requested from the City and other interested parties. Those representations were made. The yellow document to which the hon. Gentleman referred was dated November but was issued on, I think, 9 December. After a short preamble there were three clauses, dealing with tax havens, residence and upstream loans. Reading those clauses carefully, together with the Green Paper, it can be seen that the Inland Revenue paid very little attention to the representations made by the City and institutions throughout Britain.
I remind the hon. Gentleman that in the construction industry and the civil engineering industry there are many contracts signed which bring in the fiscal systems of overseas countries, and it would have been foolish to jeopardise those contracts. To have done so would have meant a loss of business for Britain. The Government published a Green Paper early last year and asked for representations about it from industry and commerce. Then, towards the end of the year and with no notice taken by the Government of those representations, another, yellow paper was produced and—this is the crucial point—further representations were asked for by the Government on the three draft clauses. The second representations were asked for by 25 February of this year. That gave industry and commerce about two months to reply to three complicated clauses.
9.30 pm
I shall not go into the technicalities of the three clauses. Suffice it to say that company residence has been subjected to much tax case law in Britain and this new clause would have put all of that case law into jeopardy. The question of company residence would again have been put into the melting pot. That cannot possibly benefit any British company that is operating overseas.
The time limit for the further representations to be made after publication of the yellow paper, that took no notice of the previous Green Paper, was 28 February. My right hon. and learned Friend introduced his Budget on 9 March. Even if one ignores the Budget, the Government and the Inland Revenue had only one month in which to deal with the many representations that would have come in before the publication of the Finance Bill at the end of March. My right hon. and learned Friend was right to defer his decision because nothing could be further from the truth than the accusation of the hon. Member for Blackburn that Britain is the best tax haven in the world. That is utter rubbish and it does a disservice to companies that operate overseas.

Mr. Straw: It was not my description. The Economist intelligence unit, a respected forecasting unit, described the United Kingdom as a tax haven and gave chapter and verse for its reasons.

Sir William Clark: I do not pay especial attention to the Economist intelligence unit. From whatever source an article is written, the opinion is that of the person writing it. That does not mean that his opinion is necessarily correct. I deny that Britain is a tax haven. My argument even extends to the previous debate on exchange controls. I say that Britain is dependent on our overseas interests. Whether the issue is overseas investments and the abolition of exchange controls or our invisible export earnings derived from our City institutions, those interests are of real benefit to this country. I urge my hon. Friend to resist this new clause.

Mr. George Foulkes: I am pleased to speak on this subject because during the past year or two years I have been active in pursuing—or trying to pursue, because it is not an easy job—the elusive tax dodgers who skip off to the Channel Islands, the Isle of Man, the Cayman Islands and elsewhere.
The story is amazing when one examines it in detail. I have here only a few of the files that I amassed during that time about the scandals—I choose the word carefully—that take place when United Kingdom citizens use tax havens such as the Channel Islands and the Isle of Man to dodge United Kingdom taxation.
Many people have asked me why I am interested in the matter because I do not represent those areas. One anomaly is that the Channel Islands and the Isle of Man have no representation in the House of Commons. Yet the Home Secretary has responsibility for many things that happen there and can overrule—

Sir Anthony Royle: The hon. Member for Blackburn (Mr. Straw) said that the United Kingdom is a tax haven. If so, why do people wish to go to the Channel Islands or anywhere else?

Mr. Foulkes: That is a very good question. There are two answers. The first is that my hon. Friend the Member for Blackburn (Mr. Straw) said that the United Kingdom

is a tax haven for other people, but the Channel Islands and the Isle of Man are tax havens for United Kingdom residents. The second answer is that I do not always agree with what my hon. Friend says. The hon. Member for Richmond, Surrey (Sir A. Royle) may choose whichever answer he prefers.
The Channel Islands and the Isle of Man are in a twilight world. They have some of the advantages of being part of the United Kingdom with none of the disadvantages. Yet they have the advantage of being separate from the United Kingdom, especially in fiscal matters.
On Thursday last week we talked about a Committee of Privy Councillors. I know that Conservative Members have a fondness for such Committees. In 1926, a report from the Privy Council under the chairmanship of his grace the Duke of Atholl—many hon. Members will remember him with reverence; he was a former Conservative Member of Parliament—stated:
There are in Jersey a few individuals of considerable means whose migration there we can only regard as a deliberate attempt to evade their responsibilities to the community. We feel strongly that His Majesty's Government should take effective steps to compel these persons to take their proper share in bearing the burdens of the United Kingdom.
If the Duke of Atholl believed that in 1926, surely we should have done something about it. However, when three draft clauses are put forward by the Inland Revenue to do something about it, the Government are not prepared to take up those suggestions.
That answers the question why I, the Member for South Ayrshire, am worried about tax dodging in the Channel Islands and the Isle of Man. If rich people evade their responsibility to the community by dodging tax, it means that my constituents must pay more tax to cover total public expenditure. I introduced a Ten-Minute Bill to my to do something about the matter, but it did not get very far. However, as a result, I received much coverage in the newspapers of the Channel Islands and the Isle of Man—although, regrettably, very little in Scotland.
It is interesting that many natives of the islands, rather than those who have moved there to avoid paying tax, supported me in correspondence. I shall read briefly from two letters. Someone from Guernsey wrote:
I have been following your campaign with interest. As a Guernseyman, it distresses me to see what is happening here. Due to our fiscal position we have attracted hundreds of spivs and tax evaders, not at all the sort of settlers we want and very different from 20 years ago. Many of our locals have not been able to resist the lure of easy money and are encouraging doubtful practice. The result is that now 40 per cent. of us are employed in the finance industry and these are the only people making a good living. It is a fool's paradise for them because it probably does not have a long term future. If the law is changed we are going to be left in a depleted condition because nothing is being done here to encourage and develop genuine enterprise more suited to a rural people. The very presence of the easy money discourages serious consideration of the future. We are constantly being told that outside companies and unit trusts with United Kingdom connections do not really benefit from being registered here. Well, what do they come for? Many holders of unit trusts are United Kingdom residents and they are not declaring this income in the United Kingdom. There appears to be no way to stop this as you will get no help from this end.
I have already found that. The Channel Islands Government—the States of Jersey and Guernsey—are only too eager to encourage this practice. I visited the Channel Islands after receiving a letter saying that I did not know what I was talking about. I spoke to the Members of the States and asked them many questions. I am willing


to accompany the hon. Member for Croydon, South (Sir W. Clark) to analyse the situation there. I found a society in which there was a large degree—I must choose my words carefully—of correlation between the Members of the States, members of the financial establishment and members of the legal establishment. One Senator was a senior member of the legal profession with a major legal firm and a director of a large number of companies set up in the Channel Islands. That happens again and again. There is a closer interrelationship between the three arms of the Establishment in the Channel Islands than exists in the United Kingdom.
The law fails to protect the interests of the ordinary person. The bankruptcy procedure in Jersey and Guernsey is strange. It does not protect the interest of creditors. I find unbelievable what was stated in the Jersey Evening Post of 11 February last year about a fraud that would have been a fraud in the United Kingdom. It stated:
But this type of fraud is not regarded as a criminal offence in Jersey".
That is an amazing statement. It shows the laxity of the laws in the Channel Islands. The situation is similar in Guernsey.
The second letter to which I wish to refer comes from the Isle of Man. Again, it is a letter of support. It states:
The best of luck with your campaign to make United Kingdom tax evaders in the Isle of Man meet their just obligations.
That is all I am asking
It is offensive that while the United Kingdom taxpayer is being squeezed
hon. Members know that only too well—
and while public expenditure in the United Kingdom is being cut back"—
Conservative Members know how much their Government are cutting back public expenditure—
these well-heeled evaders are 'living' in the Isle of Man and being subsidised by the United Kingdom taxpayers. They may say that they equally could go to Spain or some other low tax area but they would not then be sheltering under the defence umbrella of the United Kingdom or be subsidised by United Kingdom taxpayers. They want these benefits without paying for them. This is why they come to the Isle of Man. Are you aware that the defence contribution of the Isle of Man Government to the United Kingdom Government is about £500,000 per annum when on a per capita basis with the United Kingdom population, it should be nearer £10 million. Are you aware that war service pensions to Isle of Man citizens which are said to cost £1 million per annum are paid by the United Kingdom Government. The Isle of Man Government contribution is £17,000 per annum. Are you aware that the Isle of Man Government makes no contribution to the cost of the coastguard service?
The letter goes on to say that
the Isle of Man Government makes little if any contribution to the cost of consular facilities …
There is no contribution to the cost of the Royal Family"—
we were talking about that earlier—
though the Isle of Man Government claims the Queen as its titular head.
9.45 pm
I am sure that my hon. Friend the Member for Fife, Central (Mr. Hamilton) would like some contribution to the Royal Family from the Isle of Man and the Channel Islands. The letter continues:
The full cost of educating students at the U.K. Universities has not been met by the I.O.M. Government, nor has the cost of specialised hospital medical treatment … It is surprising that through this generosity of the U.K. taxpayer the I.O.M. Government can boast a Budget surplus.
We are helping them towards that budget surplus.

The I.O.M. Government is also careful to ensure that all retirement pensions and sickness or unemployment benefits paid to tax evaders and any others who have taken residence in the Isle of Man are reclaimed from the U.K. Government.
Not only do they go over there to avoid our tax, but if they are due any pensions or benefits, we still have to pay them.
In correspondence with the Treasury I raised the question of VAT and Customs and Excise.

Mr. Dudley Smith: In response to my hon. Friend the Member for Richmond, Surrey (Sir A. Royle), the hon. Gentleman said that he was shifting his ground from the United Kingdom to the Channel Islands. He has now gone to the Isle of Man. Will he tell us how many of these alleged tax evaders there are?

Mr. Foulkes: I do not have the figure. However, when I was in the Channel Islands, I looked at each of the newspapers, one of which was the Jersey Evening Post. During the week that I was there, 150 sham companies, set up for the specific purpose of tax avoidance, were registered. That is amazing for an island that has a smaller population than my constituency. I hope that gives the hon. Gentleman an idea of the extent of the fraud.

Mr. Dudley Smith: I asked the hon. Gentleman a fair question. He has been going on about the Channel Islands and the Isle of Man. We may think in terms of thousands of people, but perhaps the hon. Gentleman can give us some figures.

Mr. Foulkes: I am in the process of amassing figures of individuals. That is what my files are about. As soon as I have a comprehensive figure—I should not want to give the hon. Gentleman an incomplete figure—I shall get in touch with him.
I am sure that the Treasury will be able to help. Last year, at every sitting of the Finance Bill, the then Minister of State, Treasury, the hon. and learned Member for Dover and Deal (Mr. Rees), reiterated his theme "We need the money." This is a way of getting money that is due to the United Kingdom Inland Revenue without increasing the taxes of ordinary people.
I wrote to the Treasury about VAT and Customs and Excise and the strange letter that goes out from the Isle of Man tax authorities to try to inflate the amount due to them from Customs and Excise. They give a questionnaire to tourists for this purpose. I am grateful to the Economic Secretary, who replied to me, for saying that he would take some action on this matter.
The worrying thing is that many of these companies are set up with stooge directors. The directors in the Channel Islands take no real decisions. The real decisions are taken by the real companies in the United Kingdom which have set up subsidiaries or holding companies in the islands.

Mr. Richard Page: Of the 150 companies that the hon. Gentleman is pillorying, how many, based in countries other than the United Kingdom, use the Channel Islands as their administrative base? They bring a valuable income from abroad—from the EEC and certain countries in West Africa. I have personal experience and knowledge of that.

Mr. Foulkes: I realise that the hon. Member for Hertfordshire, South-West (Mr. Page) has much greater personal experience of these matters than I. The Jersey Evening Post showed that many of the companies—about 50 per cent.—were registered in the United Kingdom. However, I should need to check that figure to be


absolutely sure. When I was in the Channel Islands, people did not deny that a substantial number of companies were basically United Kingdom companies.

Mr. Campbell-Savours: Perhaps my hon. Friend will put it to Conservative Members who persist in intervening that if they want the answers to these questions—we, too, want them—they should call upon their Front Bench to give the answers in parliamentary replies.

Mr. Foulkes: That is a good suggestion. I hope that if the hon. Member for Hertfordshire, South-West puts down these questions, he will get fuller and more helpful answers than I get on this matter from the Treasury.
I shall not read the whole of this letter, because it is very long. Hon. Gentlemen may find my remarks going home more than they had expected.

Mr. Campbell-Savours: Near the bone.

Mr. Foulkes: My hon. Friend is right. The letter says:
Many of Mrs. Thatcher's most devoted supporters who evidently do not put their money where their mouths are have taken up residence here as tax evaders notably Lord Brookes, formerly of GKN, and Sir Charles Farmer, formerly of British Leyland. It is believed that Lord Brookes still attends the House of Lords".
I find it appalling that someone, who apparently deliberately goes to the Isle of Man to avoid tax, should attend these Houses of Parliament and play a part in United Kingdom legislation.

Mr. Dudley Smith: On a point of order, Mr. Speaker. I have no wish to intervene in the hon. Gentleman's speech, which is wide ranging, but he is attacking someone who is allegedly a Member of the House of Lords. I believe that it is out of order to do that in this House.

Mr. Speaker: The hon. Member for Warwick and Leamington (Mr. Smith) is right. It is wrong to criticise a Member of the other place, in the same way as we do not like them to criticise us. However, I was waiting. The hon. Member for South Ayrshire (Mr. Foulkes) did not go very far.

Mr. Foulkes: I am grateful to you, Mr. Speaker. I try not to go too far in these matters, and I appreciate your advice. I was quoting from the letter and, as far as I can gather, this correspondent's facts are right. My hon. Friend the Member for Blackburn quoted one of his constituents who was noted for this kind of tax avoidance, but when it involves someone who is in a position to participate in our legislative process, it rankles a little.
There is another case that I want to mention, and it is one about which we should be particularly concerned. It involves another great hero of Conservative Members—Sir Freddie Laker. He registered his company in Jersey deliberately to avoid some of the rules and regulations involving tax and other matters, including United Kingdom employment legislation. We are always hearing about the great Sir Freddie. I saw some of his employees being interviewed. They said that their terms and conditions of service were not the same as those of airline companies in the United Kingdom, such as British Airways and British Caledonian. I could not understand why, until I realised that, by avoiding United Kingdom legislation on all these matters—wages councils and the Employment Acts—he was able to employ cheap labour

to whom he did not have the obligations that he would have had if his company had been properly registered in the United Kingdom.
I could cite many more examples of corruption in the Channel Islands. I remind the House of the famous trust set up by Sir Charles Clore, in Jersey and the selling of a substantial estate in the United Kingdom by a company registered in the Channel Islands, both to avoid United Kingdom taxation.
I am pleased that some people in the Channel Islands and the Isle of Man have recently begun to realise that such tax avoidance is bad for the islands' reputation. A recent headline read:
Publicity over alleged fraud 'not good for Jersey'".
The natives and others in the Channel Islands now realise that tax avoidance causes bad publicity.
I have said enough to illustrate the tax evasions. I did not expect the Government to introduce the thorough reform necessary to catch the individuals who are sloping off to the Channel Islands and the Isle of Man to avoid United Kingdom taxations. I did not expect the Government to get at the companies setting up in the Channel Islands and the Isle of Man to avoid their responsibilities to the United Kingdom. Much of their money is made from trading with the United Kingdom. However, I expected three of the reforms suggested by the Inland Revenue—minor and marginal though they are—to be accepted. A press release from the Inland Revenue suggested that such minor reforms would be included in this year's Finance Bill.
The Bill's provisions will harm the unemployed, and many other United Kingdom citizens resident here, by imposing a greater tax burden. There is no willingness to deal with the people who are fitting to the Channel Islands and the Isle of Man to avoid their responsibility to the United Kingdom taxpayer.
I expected a little more to be done to deal with tax evaders. I am deeply disappointed. The Government are concerned more with the interests of millionaires and tax dodgers. We need a Government concerned with the interests of the unemployed, the widowed and the elderly. The only way that we shall achieve that is by a change of Government.

The Minister of State, Treasury (Mr. John Wakeham): My hon. Friend the Member for Croydon, South (Sir W. Clark) made a sensible, experienced and practical contribution. I can understand why the hors. Member for South Ayrshire (Mr. Foulkes) does not receive much publicity in his constituency.

Mr. Foulkes: I do not wish the Minister to be misled. I said that I did not expect much publicity about the topic that we are discussing. On other issues, I do not do too badly.

10 pm

Mr. Wakeham: The hon. Gentleman is clearly regretting his speech already and I do not blame him for that.
I hope that the hon. Gentleman does not get much publicity in Blackburn either. He will not do his hon. Friend the Member for Blackburn (Mr. Straw) much good. He pretty well destroyed much of his case by pointing out that if all these lovely watering places both in Europe and


in further-flung and sunnier climes were the real tax havens, perhaps the United Kingdom was not quite the tax haven that it has been made out to be.
United Kingdom citizens who invest in the United Kingdom pay a substantial amount of their profits in tax. That is not the problem that either of us are seriously addressing our minds to. Abuses that come to light are dealt with and new clauses have been brought in to deal with problems arising from leasing and so on.
The hon. Member for Blackburn waxed eloquent. I can understand why such a reasonable man feels it necessary from time to time to make an impassioned speech on this subject. However, he threw more heat than light on what is a difficult problem. I do not believe that quoting from The Economist Intelligence Unit in the way that he did throws a great deal of light on the subject.
It seems to me that the hon. Gentleman confused two issues. There is, first, the question of overseas investors, who use the facilities in the City of London to invest their capital. In many cases that investment goes overseas, but the City of London provides the necessary professional skills and integrity—the legal, banking, and, dare I say it, accounting skills—that are much prized and that produce a substantial degree of overseas earnings for Britain, which I hope to see continue and grow.
Overseas investors who invest their money in British trading concerns pay the same tax on their profits as any other investors in Britain, although, as overseas residents, they are entitled to exemption from capital gains tax on their investments in Britain.
The real issue to be discussed is investment by new companies overseas and the United Kingdom based companies that trade overseas. I freely admit that there is a legitimate concern that in some cases—it is difficult to be specific—companies are not paying the full amount of tax on their profits and, as a result, others are having to pay more tax than they otherwise would.
The position has changed as a result of the ending of exchange control. Section 482 of the Income and Corporation Taxes Act 1970, which forbids the emigration of companies and certain other transactions without Treasury consent, is clearly inappropriate in the new circumstances. That is why the discussion document was introduced, bringing in new criteria, more in keeping with the present-day commercial reality, to determine whether a company is resident here for tax purposes. The emphasis would be placed on where the company's business as a whole is managed rather than where the company's affairs are managed.
In his Budget speech my right hon. and learned Friend the Chancellor announced that there would be no legislation this year, to allow more time for consultation. He said that the Inland Revenue's proposals had caused widespread anxiety, that the problem of company residence needed to be looked at again and that, with regard to tax havens, it was necessary to find the middle of the road approach that would not prejudice legitimate business. The hon. Member for Blackburn would not disagree with that. We must find a middle road which will cut out abuse and avoidance but which will not prejudice legitimate business. Once examination of the points raised in the representations on the draft legislation of November 1981 is complete, it is intended to continue consultation on the basis of a revised version of the draft legislation.
The revised draft legislation will be published later this year. Its timing, and the length of the further consultation period, will be such as to leave open the possibility of including legislation in the Finance Bill 1983. Therefore, in all probability, a decision on whether to legislate will be taken within the 12-month time limit that the clause seeks to impose. However, the issues are far too complex and important for the Government to have to operate to such a deadline. The Government are tackling the issues seriously and are determined to deal with abuses, but at the same time to ensure that legitimate business operations are not impeded by unnecessary and unreasonable legislation. We fully intend to come forward with proposals this year—

Mr. Straw: Does the hon. Gentleman accept that we are dealing with two categories of potential tax avoiders: those people who have been eloquently described as "spivs"—and all hon. Members will accept that they should come within new anti-avoidance laws—and legitimate businesses that are using loopholes in the tax laws to avoid paying substantial taxes? Does the hon. Gentleman accept that that second category should also be brought within the ambit of the new anti-avoidance provisions?

Mr. Wakeham: I certainly agree that there are companies that carry on a legitimate business, a perfectly good trading business, but take what advice they can get to minimise their tax. I do not complain about that. However, there are several cases that should be brought into the ambit of corporation tax. We intend to get the balance between legitimate operations and avoidance right. Therefore, the Government are dealing with the matter with all speed. However, it would be wrong for the House to accept a new clause that placed such a restriction on the Chancellor of the Exchequer, and I invite my hon. Friends to oppose it.

Mr. Straw: It seemed to be suggested that there was a contradiction between what I said and what my hon. Friend the Member for South Ayrshire (Mr. Foulkes) said. It happens to be a rule in the Labour Party that my hon. Friend never disagrees with me. Moreover, there is no need for any disagreement, because he is concerned about the use of tax havens outside the United Kingdom by United Kingdom residents. I was concerned about the use of the United Kingdom as a tax haven by residents outside the United Kingdom. Therefore, we are discussing two separate issues.
Of course, tax havens in Britain could not provide the benefit that they do without there being tax havens elsewhere, because the two are closely linked. Often a United Kingdom resident company uses a tax haven abroad to accumulate income earned abroad and then uses upstream loans to launder that income back to the United Kingdom without bearing any tax liability. Businesses that in every other respect operate legitimate and genuine trading activities use that device and the new clauses seek to deal with that. In addition, the definition of company residence in this country and the charge to tax of profits earned in this country by companies resident abroad is far laxer than that found in the United States of America.
Although the Minister said that the Government were proceeding with all speed, the truth is that they have been extraordinarily dilatory in dealing with major tax evasion, because they seek to tax their friends in the City properly,


whereas when it comes to taxing the poor and imposing a tax on unemployed people, for whom £60 is a fortune and not merely the loose change in their pockets, there is no period of consultation and the decisions are announced arbitrarily.
When the Government decided to give away £150 million in capital gains tax concessions there was no consultation. Although the hon. Member for Croydon, South (Sir W. Clark) objected to indexation, he did not vote against the principle of giving away £150 million to those who were already wealthy, while the Government took £150 million from the unemployed by a trick that they perpetrated on us about 18 months ago.
The truth is that the issue of company residence, upstream loans and tax havens in the corporate sector, as my hon. Friend the Member for South Ayrshire said, were modest proposals for change contained in the consultative document and the draft clause. If the Government had wished, they could have legislated upon that in this Budget. For the Government to say that, although they are proceeding with all speed they need more than a year to deal with the matter is outrageous and intolerable. Therefore, we intend to press the new clause to a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 209. Noes 281.

Division No. 264]
[10.12 pm


AYES


Abse, Leo
Dixon, Donald


Allaun, Frank
Dobson, Frank


Alton, David
Dormand, Jack


Archer, Rt Hon Peter
Dubs, Alfred


Ashley, Rt Hon Jack
Duffy, A. E. P.


Ashton, Joe
Dunnett, Jack


Atkinson, N.(H'gey,)
Dunwoody, Hon Mrs G.


Bagier, Gordon A.T.
Eadie, Alex


Barnett, Guy (Greenwich)
Eastham, Ken


Barnett, Rt Hon Joel (H'wd)
Edwards, R. (W'hampt'n S E)


Beith, A. J.
Ellis, R. (NE D'bysh're)


Benn, Rt Hon Tony
Ellis, Tom (Wrexham)


Bennett, Andrew(St'kp't N)
English, Michael


Bidwell, Sydney
Ennals, Rt Hon David


Boothroyd, Miss Betty
Evans, John (Newton)


Bray, Dr Jeremy
Ewing, Harry


Brown, Hugh D. (Provan)
Faulds, Andrew


Brown, Ron (E'burgh, Leith)
Fletcher, Ted (Darlington)


Buchan, Norman
Foot, Rt Hon Michael


Callaghan, Jim (Midd't'n &amp; P)
Forrester, John


Campbell, Ian
Foulkes, George


Campbell-Savours, Dale
Fraser, J. (Lamb'th, N'w'd)


Canavan, Dennis
Freeson, Rt Hon Reginald


Carmichael, Neil
Garrett, John (Norwich S)


Carter-Jones, Lewis
Garrett, W. E. (Wallsend)


Cartwright, John
Ginsburg, David


Clark, Dr David (S Shields)
Golding, John


Clarke, Thomas C'b'dge,A'rie
Graham, Ted


Cocks, Rt Hon M. (B'stol S)
Hamilton, James (Bothwell)


Cohen, Stanley
Hamilton, W. W. (C'tral Fife)


Coleman, Donald
Hardy, Peter


Concannon, Rt Hon J. D.
Harrison, Rt Hon Walter


Cowans, Harry
Hart, Rt Hon Dame Judith


Cox, T. (W'dsw'th, Toot'g)
Hattersley, Rt Hon Roy


Craigen, J. M. (G'gow, M'hill)
Haynes, Frank


Crowther, Stan
Healey, Rt Hon Denis


Cryer, Bob
Heffer, Eric S.


Cunliffe, Lawrence
Hogg, N. (E Dunb't'nshire)


Cunningham, G. (Islington S)
Holland, S. (L'b'th, Vauxh'll)


Cunningham, Dr J. (W'h'n)
Home Robertson, John


Dalyell, Tam
Homewood, William


Davidson, Arthur
Hooley, Frank


Davis, Clinton (Hackney C)
Horam, John


Davis, Terry (B'ham, Stechf'd)
Howell, Rt Hon D.


Deakins, Eric
Hoyle, Douglas


Dean, Joseph (Leeds West)
Hughes, Mark (Durham)


Dewar, Donald
Hughes, Robert (Aberdeen N)





Hughes, Roy (Newport)
Roberts, Allan (Bootle)


Janner, Hon Greville
Roberts, Ernest (Hackney N)


Jay, Rt Hon Douglas
Roberts, Gwilym (Cannock)


John, Brynmor
Robertson, George


Johnson, James (Hull West)
Robinson, G. (Coventry NW)


Johnson, Walter (Derby S)
Rooker, J. W.


Jones, Rt Hon Alec (Rh'dda)
Roper, John


Jones, Barry (East Flint)
Ross, Ernest (Dundee West)


Kaufman, Rt Hon Gerald
Ross, Stephen (Isle of Wight)


Kerr, Russell
Rowlands, Ted


Kilroy-Silk, Robert
Sever, John


Lamond, James
Sheerman, Barry


Leadbitter, Ted
Sheldon, Rt Hon R.


Leighton, Ronald
Shore, Rt Hon Peter


Lestor, Miss Joan
Short, Mrs Renée


Lewis, Ron (Carlisle)
Silkin, Rt Hon J. (Deptford)


Litherland, Robert
Silkin, Rt Hon S. C. (Dulwich)


Lofthouse, Geoffrey
Silverman, Julius


Lyons, Edward (Bradf'd W)
Skinner, Dennis


Mabon, Rt Hon Dr J. Dickson
Soley, Clive


McCartney, Hugh
Spearing, Nigel


McDonald, Dr Oonagh
Spriggs, Leslie


McElhone, Frank
Stallard, A. W.


McGuire, Michael (Ince)
Steel, Rt Hon David


MacKenzie, Rt Hon Gregor
Stewart, Rt Hon D. (W Isles)


McNally, Thomas
Stoddart, David


McTaggart, Robert
Stott, Roger


McWilliam, John
Strang, Gavin


Magee, Bryan
Straw, Jack


Marks, Kenneth
Thomas, Dafydd (Merioneth)


Marshall, Dr Edmund (Goole)
Thorne, Stan (Preston South)


Marshall, Jim (Leicester S)
Tilley, John


Martin, M(G'gow S'burn)
Tinn, James


Mason, Rt Hon Roy
Torney, Tom


Maxton, John
Urwin, Rt Hon Tom


Maynard, Miss Joan
Varley, Rt Hon Eric G.


Mikardo, Ian
Wainwright, E.(Dearne V)


Millan, Rt Hon Bruce
Wainwright, R.(Colne V)


Miller, Dr M. S. (E Kilbride)
Weetch, Ken


Mitchell, Austin (Grimsby)
Welsh, Michael


Morris, Rt Hon A. (W'shawe)
White, Frank R.


Morris, Rt Hon C. (O'shaw)
White, J. (G'gow Pollok)


Morton, George
Whitehead, Phillip


Moyle, Rt Hon Roland
Whitlock, William


Newens, Stanley
Wigley, Dafydd


Oakes, Rt Hon Gordon
Willey, Rt Hon Frederick


O'Halloran, Michael
Williams, Rt Hon A.(S'sea W)


O'Neill, Martin
Wilson, Gordon (Dundee E)


Orme, Rt Hon Stanley
Wilson, Rt Hon Sir H.(H'ton)


Palmer, Arthur
Winnick, David


Park, George
Woodall, Alec


Parker, John
Woolmer, Kenneth


Parry, Robert
Wright, Sheila


Pavitt, Laurie
Young, David (Bolton E)


Penhaligon, David



Race, Reg
Tellers for the Ayes:


Radice, Giles
Mr. Allen McKay and


Rees, Rt Hon M (Leeds S)
Mr. Derek Foster.


Richardson, Jo



Roberts, Albert (Normanton)



NOES


Adley, Robert
Biffen, Rt Hon John


Aitken, Jonathan
Biggs-Davison, Sir John


Alexander, Richard
Blackburn, John


Alison, Rt Hon Michael
Blaker, Peter


Arnold, Tom
Body, Richard


Aspinwall, Jack
Bonsor, Sir Nicholas


Atkins, Rt Hon H.(S'thorne)
Boscawen, Hon Robert


Atkins, Robert(Preston N)
Bottomley, Peter (W'wich W)


Atkinson, David (B'm'th,E)
Bowden, Andrew


Baker, Nicholas (N Dorset)
Boyson, Dr Rhodes


Banks, Robert
Braine, Sir Bernard


Beaumont-Dark, Anthony
Bright, Graham


Bendall, Vivian
Brinton, Tim


Bennett, Sir Frederic (T'bay)
Brittan, Rt. Hon. Leon


Benyon, Thomas (A'don)
Brooke, Hon Peter


Benyon, W. (Buckingham)
Brotherton, Michael


Best, Keith
Browne, John (Winchester)


Bevan, David Gilroy
Bruce-Gardyne, John






Bryan, Sir Paul
Griffiths, E.(B'y St. Edm'ds)


Buchanan-Smith, Rt. Hon. A.
Griffiths, Peter Portsm'th N)


Buck, Antony
Grist, Ian


Budgen, Nick
Grylls, Michael


Bulmer, Esmond
Gummer, John Selwyn


Burden, Sir Frederick
Hamilton, Hon A.


Butcher, John
Hamilton, Michael (Salisbury)


Cadbury, Jocelyn
Hampson, Dr Keith


Carlisle, John (Luton West)
Hannam, John


Carlisle, Kenneth (Lincoln)
Haselhurst, Alan


Carlisle, Rt Hon M. (R'c'n)
Hastings, Stephen


Chalker, Mrs. Lynda
Havers, Rt Hon Sir Michael


Channon, Rt. Hon. Paul
Hawksley, Warren


Chapman, Sydney
Hayhoe, Barney


Churchill, W. S.
Heddle, John


Clark, Hon A. (Plym'th, S'n)
Heseltine, Rt Hon Michael


Clark, Sir W. (Croydon S)
Hicks, Robert


Clarke, Kenneth (Rushcliffe)
Higgins, Rt Hon Terence L.


Cockeram, Eric
Hill, James


Colvin, Michael
Hogg, Hon Douglas (Gr'th'm)


Cope, John
Holland, Philip (Carlton)


Costain, Sir Albert
Hordern, Peter


Cranborne, Viscount
Howell, Rt Hon D. (G'ldf'd)


Critchley, Julian
Howell, Ralph (N Norfolk)


Crouch, David
Hunt, David (Wirral)


Dickens, Geoffrey
Hunt, John (Ravensbourne)


Dorrell, Stephen
Irvine, Bryant Godman


Douglas-Hamilton, Lord J.
Irving, Charles (Cheltenham)


Dover, Denshore
Jenkin, Rt Hon Patrick


du Cann, Rt Hon Edward
Jessel, Toby


Dunn, Robert (Dartford)
Johnson Smith, Sir Geoffrey


Durant, Tony
Jopling, Rt Hon Michael


Eden, Rt Hon Sir John
Joseph, Rt Hon Sir Keith


Edwards, Rt Hon N. (P'broke)
Kaberry, Sir Donald


Eggar, Tim
Kershaw, Sir Anthony


Elliott, Sir William
Kimball, Sir Marcus


Eyre, Reginald
Knight, Mrs Jill


Fairbairn, Nicholas
Knox, David


Fairgrieve, Sir Russell
Lamont, Norman


Faith, Mrs Sheila
Lang, Ian


Farr, John
Latham, Michael


Fell, Sir Anthony
Lawrence, Ivan


Fenner, Mrs Peggy
Lawson, Rt Hon Nigel


Finsberg, Geoffrey
Lee, John


Fisher, Sir Nigel
Lennox-Boyd, Hon Mark


Fletcher, A. (Ed'nb'gh N)
Lester, Jim (Beeston)


Fletcher-Cooke, Sir Charles
Lewis, Kenneth (Rutland)


Fookes, Miss Janet
Lloyd, Ian (Havant &amp; W'loo)


Forman, Nigel
Lloyd, Peter (Fareham)


Fowler, Rt Hon Norman
Loveridge, John


Fox, Marcus
Luce, Richard


Fraser, Peter (South Angus)
Lyell, Nicholas


Fry, Peter
Macfarlane, Neil


Gardner, Edward (S Fylde)
MacGregor, John


Garel-Jones, Tristan
MacKay, John (Argyll)


Glyn, Dr Alan
Macmillan, Rt Hon M.


Goodhart, Sir Philip
McNair-Wilson, M. (N'bury)


Goodhew, Sir Victor
McNair-Wilson, P. (New F'st)


Goodlad, Alastair
Major, John


Gorst, John
Marland, Paul


Gow, Ian
Marten, Rt Hon Neil


Grant, Anthony (Harrow C)
Maude, Rt Hon Sir Angus


Gray, Hamish
Mawby, Ray


Greenway, Harry
Mawhinney, Dr Brian

Question accordingly negatived.

Finance Bill

New Clause 6

RATES RELIEF FOR SMALL COMPANIES

`Where a company may claim under section 95 of the Finance Act 1972 that the corporation tax charged on its income for the relevant period shall be calculated at the small companies rate or is a registered industrial and provident society or housing association and is eligible under section 96 of the Finance Act 1972 to pay corporation tax at the special rate the charge to tax shall be reduced by a sum of the following amount: R × (C—S)—over 100 where R is the amount of rates paid by the company to local authorities in the relevant period, C is the rate of corporation tax and S is—

(a)the small companies' rate of corporation tax in respect of any company whose profits do not exceed the lower relevant maximum amount; and
(b)is the average rate of corporation tax which would be chargeable on the income of the company taking account of marginal relief under subsection (3) of the said section 95, but excluding relief under this subsection, in respect of any company whose profits do exceed the lower relevant maximum amount but which do not exceed the upper relevant maximum amount; and
(c)is the special rate of corporation tax, in respect of any registered industrial and provident society and any housing association as further defined in section 96 of the Finance Act 1972.'.—[Mr. Straw.]

Brought up, and read the First time.

Mr. Straw: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this we may consider new clause 32—Deductions from rates by companies.

`(1) Any company which has in any year a liability to pay rates to a local authority shall be entitled to deduct from the sum due an amount calculated by reference to the same percentage as the percentage settled as the rate of Corporation Tax as further defined in subsection (4) below, and that local authority shall accept that reduced sum as the full sum which the company is liable to pay.
(2) Any local authority which has received a payment with a deduction as prescribed in subsection (1) above shall be entitled to record an amount equal to the amount so deducted from the Inland Revenue.
(3) For the purposes of Corporation Tax amounts payable by companies to local authorities by way of rates shall not be allowed as deductions from total profits.
(4) The rate of Corporation Tax for the purposes of subsection (1) above is the small companies rate for the previous year.
(5) Where a company's profits are charged at the standard rate of Corporation Tax for the year in which it was liable to pay rates to a local authority as mentioned in subsection (1) above, that company shall be entitled to a rebate equal to the difference between the sum withheld under that subsection and the sum which would have been withheld if that sum had been calculated by reference to the standard rate of Corporation Tax for that year.

Mr. Straw: The last three years have seen the Government seeking at every stage to use local authorities, especially Labour-controlled authorities, as a scapegoat for the failure of their economic policies. We have heard Labour authorities criticised for the rate increases that they have been forced to impose. We have heard them blamed for the rise in the number of jobless. Most preposterous of all, they have been blamed for the increasing failure rate of the Government's economic policies.
The number of companies going into liquidation and the number of small firms going bankrupt have reached an all-time high. But the Government have not been assisted in their slanders of local government by the facts and, over

the past two years, I have made it my job to ensure that some of the facts about rates and local authorities were brought to the attention of the public. I have made it my job to point out to electors that, contrary to popular myth, domestic rate bills on average in Conservative-controlled areas are considerably higher than they are in Labour-controlled areas—a fact that we are only too well aware of in the low rate bill, Labour-controlled areas of Lancashire.
Local authority leaders have been the subject of sustained and often ill-founded attacks upon their services by local branches of the CBI and chambers of commerce. I have sought to point out that the proportion which rates bear to total industrial costs is very much lower than critics in the Government and CBI would have us believe.
If we look at the facts, we find that rates as a proportion of total costs in manufacturing industry have consistently amounted to less than 1 per cent. of the total. I asked the Minister for Local Government and Environmental Services for the latest information on 23 April this year. He gave me the following information about rates as a proportion of total manufacturing industry's costs. He said that rate payments totalled £925 million in 1979 and that as a proportion of manufacturing costs, these rate payments amounted to 0·66 per cent., which is two-thirds of 1 per cent.
10.30 pm
The Minister has made many speeches about rates being a job destroyer. I was surprised that the latest figures that he could provide for the House were for 1979. I asked him why he had no later figures. He simply provided me with a bland answer that
Figures on rate payments by manufacturing industry and manufacturing costs are obtained from the business statistics office annual censuses of production. Information for 1980 is expected to become available at the end of this year."—[Official Report, 29 April 1982; Vol. 22, c. 330.]
Therefore, first we have the basic background fact that rates as a proportion of industrial costs are less than 1 per cent. of those total costs. Secondly there is the fact that forms the background to the new clause, which is rarely, if ever, explained or admitted by the CBI or the Government. It is chat companies can obtain tax relief on their rate payments. If they are liable to corporation tax at the rate of 52p in the pound, which large companies ate, on the marginal additional payments of rates that tax relief amounts to 52p in the pound, which contrasts starkly with the domestic ratepayers, who, although they receive some domestic rate relief, get no tax relief on their rate payments.

Mr. John Heddle: The hon. Gentleman seems to be arguing his case two ways. First, he is saying that the rates burden on small businesses is an infinitesimal proportion of turnover, output or profit, which he has not yet defined, yet the purport of his new clause is that there should be some form of relief, with which I wholeheartedly agree. Perhaps he will advise the House precisely what the domestic ratepayer gets for his or her money as opposed to what the commercial or industrial ratepayer gets for his money.

Mr. Straw: I am not sure whether, if I went down that track, Mr. Deputy Speaker would regard my remarks as being in order. There are separate occasions on which we can debate with Conservative Members the services that commercial ratepayers obtain. I made the point to draw out


the fact that most large companies obtain tax relief on their rate payments at 52p in the pound. I knew when I was writing my speech in the Library that the hon. Gentleman or one of his hon. Friends would suggest that there was a contradiction between making a statement, which is generally true—that rate payments as a proportion of total industrial costs are low—and saying that, if we apply ourselves to the facts, although rate payments as a proportion of total industrial costs are low—I am glad that the hon. Gentleman is acknowledging that—

Mr. Heddle: No, I am not.

Mr. Straw: Although they are low and the Government's facts prove that point—[Interruption.] The reason why I want relief is that we in the Opposition try to apply ourselves to the facts of the situation. For example, we have all read the report on non-domestic rates with reference to small firms, which was sponsored by Shell United Kingdom Ltd. and published by Cooper & Lybrand Associates. It draws attention to the relatively small burden of rates as a whole on industry and commerce. It states that rates are, relatively, a higher burden on small businesses. The Opposition are seeking to apply fairness to the situation. I hope that the hon. Member for Lichfield and Tamworth (Mr. Heddle), who shows support for the proposal, will vote with us in the Lobby later tonight. My point is exactly the one made in the report. The Centre for Environmental Studies, which conducted a study in 1978 on behalf of itself and the CBI, said that rates were rising very sharply, both in money terms and relative to turnover, profit, and so on, up to 1975, but that since then the growth has been slower.
The report then went on to say that
The highest rate burden seems to have been borne by smaller firms and by firms in the service sector.
That happens to be a fact. Moreover, as the report also draws out, it happens to be a fact that the retail trades bear a higher burden of rates, as a proportion of their total costs, than industry. Whereas industry bears, as a proportion of its total costs, a rate burden of 1 per cent., the burden on the distributive and retail trades is about 4½ per cent. As hon. Members know, many firms in the retail trades are very small.
I said a moment ago that in general large firms, liable to corporation tax, are entitled to tax relief on their rate bills of 52p in the pound. But, as the House knows, small businesses—which for these purposes are businesses with profits of up to £90,000—pay corporation tax at a lower rate of 40p in the pound, and businesses with profits between £90,000 and £225,000 pay corporation tax on a sliding scale on average between 40p in the pound and the main rate of 52p in the pound.
The small business relief to corporation taxpayers is generally beneficial, but it means that for every additional pound which is paid out in rates the marginal net cost to a small firm, if it is paying or liable to pay corporation tax at 40p, is 60p in the pound compared with 48p in the pound for a large company liable to corporation tax at 52p.
The new clause seeks to give small companies, liable to corporation tax at 40p in the pound, the same tax relief as large companies. That would seem to be fair. Whatever the overall absolute burden of rates may be, whether overall rates as a proportion of total cost are 1 per cent., 10 per cent. or 20 per cent., it must be sensible and fair

to ensure that the burden which falls on small companies by way of their rate payments, other things being equal, is roughly the same as the burden which falls on large companies. That is what the amendment seeks to do. It also provides similar relief for housing associations and co-operative societies which are liable only to the lower rate of corporation tax. It provides for a sliding scale of relief for those small to medium-sized companies with profits between £90,000 and £225,000 which are liable to an average rate of corporation tax of between 40 and 52 per cent. They get a level of tax relief which is the difference between their average rate and 52p in the pound.
It was made known some time ago that the Opposition would be putting forward proposals, and the views of the CBI and the London Chamber of Commerce and Industry were sought. I did not seek them, but the Treasury, about six weeks ago, sought a copy of a notice which I issued about the proposals, so we shall look with great interest at the Treasury's response. Over the telephone, the CBI expressed some interest in the proposals and raised several points about their operation. The London Chamber of Commerce and Industry, in a letter to me in response to the proposals, says:
It seems likely that your specific suggestions would be helpful in a number of cases.
It went on to say, to deal with a point that Conservative Members may raise in this connection:
The problem however remains that they would only benefit small firms which were actually making a profit or were likely to within a fairly short period. They would not do anything for the small private firm which is suffering the effects of the recession or a group of people in the initial stages of trying to preserve their jobs through some form of common ownership enterprise.
I accept that the new clause would not benefit a company that was totally tax-exhausted, although I draw to the attention of the House the fact that my hon. Friend the Member for Workington (Mr. Campbell-Savours), in his new clause, proposes that all companies, regardless of size, should be able to pay their rates net of small companies' tax relief of 40p in the £, which would plainly benefit all companies that are trading, whether they are tax-exhausted or not.
This proposal is more modest and we do not suggest that the use of this device alone will enable companies to overcome the immense problems that they face because of the Government-induced recession in the past three years. Nor do I resile from the point made by the London Chamber of Commerce and Industry that it does not provide help for tax-exhausted companies. However, it seems to be consistent with the generality of reliefs that have been written into corporation tax law. The problem with all those reliefs is that they apply only to companies that are still making a profit or that are likely to do so in the not too distant future. They can benefit from the rollover reliefs provided within the corporation tax regime.
For companies that make a profit or that are likely to make a profit—or, if they are not, the fact that their rate burden will not tip them over the edge to bankruptcy—high interest rates have had a much more serious effect. But for those that have reasonable prospects this proposal provides small companies with substantial help with their rate bills. A company that pays rates of £5,000 gross will be entitled to relief of £600 at the 40p in the £ rate.
Despite all the rhetoric that we have heard from the Government about their desire to help both the corporate and the personal taxpayer, their actions have done exactly the reverse. While promising to reduce personal taxation, the Government have forced it up and, while promising help for business, they have not only forced up business costs with high interest rates but must bear the principal responsibility for the increase in the rates that industry must pay because of cuts in the rate support grant and the way that they have eschewed the distribution of the rate support grant from our hard-pressed inner cities. The Government bear the principal burden of responsibility for the increase in business and domestic rates. We do not suggest that this is anything other than a modest proposal, but it is the first tangible proposal that has been discussed by the House to provide sensible relief for small companies and to deal with their specific problems.
I hope that we shall hear no arguments this evening from the Government about the drafting defects of the clause. It may well have some defects, but the Government have had details of it for some months and have been aware of every line of it for some weeks. It was open to them at any stage to seek the co-operation of the Opposition to ensure that the clause was put in order, or it is open to them tonight to table manuscript amendments if they wish to ensure that the clause goes on the statute book in a non-defective way. This is a sensible proposal for relieving small companies of some part of their rate burden. We hope that the Government will accept it.

Mr. Richard Page: I shall reluctantly ask my hon. Friend to reject the blandishments that he should accept the new clause. I recognise the sentiment behind the clause, despite the muddled thinking displayed by the hon. Member for Blackburn (Mr. Straw) as he tried to straddle the party political position and the realities of the business world. I am also reluctant to recommend my hon. Friend to refuse to accept the new clause, because I recognise only too well the rates burden on smaller businesses. It is a burden that no management, whatever its skill, can avoid. Management can mitigate or reduce the effect of most things, including the national utilities, but the rates burden lies like a lump of lead on the balance sheet. It means that cash flow cannot be improved. It makes no allowance for the market conditions facing small companies.
A further indignity of the rates burden is that businesses have no democratic representation in respect of what they pay. That old cry "No taxation without representation" must be raised as a constant reminder every time money is demanded of taxpayers. There is a growing pressure for rate reform. There is an increasing feeling that we have an unjust and unfair system. Some people will argue that no reform is necessary. I maintain, however, that the system is unfair and undemocratic. Those who advocate that it is too difficult to change the system remind me of the yokel, leaning over the fence, who replies to the motorist asking the way to the nearest town "I would not start from here" The time is coming when we shall have to introduce a change in the rating system.
I ask my hon. Friend to resist the new clause because I do not wish to see piecemeal change. What is needed is a planned programme that will produce a new, more effective and more representative rating system. I do not wish to see any easing of pressure for change.
The clause is ostensibly designed to help smaller businesses, but it seems more designed to help the small profit of companies. We should be introducing a differential between large and small companies. For that reason, I am unhappy about the proposals of the hon. Member for Blackburn. I applaud the sentiment behind the new clause—I genuinely mean what I say—but I must ask my hon. Friend to resist it. I hope, however, that the Government will bring forward rating reform to enable businesses to flourish in a better environment.

Mr. Campbell-Savours: My hon. Friends will be grateful for the support of the hon. Member for Lichfield and Tamworth (Mr. Heddle) for the new clause moved by my hon. Friend the Member for Blackburn (Mr. Straw). I am sure that his constituents will be eager for him to accompany the Opposition into the Lobby in support of the new clause.

Mr. Heddle: The hon. Gentleman should cast his mind back. I have sympathy for any cause that seeks to lighten the burden of the industrial and commercial ratepayer who has no vote, no voice, no say and no sanction over the manner in which an extravagant local authority spends money and receives no services for that money.

Mr. Campbell-Savours: The record will clearly show what the hon. Gentleman said. He will find that what I said is a precise interpretation of his words.
The new clause is an eminently sensible way of dealing with the problem of rates. It will introduce to the rating system what has been repeatedly referred to in the three years that I have served on Finance Bill Committees as "equity in taxation".
I beg to move new clause 32, which is my clause in the sense that I thought it out. Therefore, although it may not be in order, and the Government may not wish to accept it, I hope that they will take into account the principle that I am endeavouring to establish.

Mr. Deputy Speaker (Mr. Bernard Weatherill): Order. On a point of clarification. I should point out that the hon. Gentleman cannot move his new clause at this moment. He may speak to it, because it is being taken with new clause 6.

Mr. Campbell-Savours: I presume that I may speak to my new clause, which is grouped with new clause 6.
Subsection (1) would allow companies to pay rates net of corporation tax. Subsection (2) would enable local authorities to collect from the Inland Revenue all sums that should be paid if rates were paid gross. Subsection (3) would make rate payments not allowable as deductions from profits for the purposes of corporation tax. Subsection (4) deals with the rate for corporation tax in my clause, that being the lower rate of corporation tax of 42 per cent. Subsection (5) would require adjustment to the accounts of companies paying tax at the higher rate.
The new clause sets out to establish the same principle for rate payments as already exists in the option mortgage arrangements, which, in a marginal way, have been interfered with and changed because of changes in the Budget and the Finance Bill. It would enable claims to tax relief to be made prior to the payment of rates. The precedent is clearly set in clause 25, which deals with deductions of tax from mortgage interest. Under clause 25 most borrowers will be entitled to deduct income tax at the basic rate from payments of interest on such loans. From


the same date, such borrowers will cease to get relief for basic rate income tax in their PAYE codes and tax assessments. Borrowers within the new arrangements will obtain basic rate relief, even if their income is insufficiently high to attract tax. In effect, a negative income tax or subsidy is introduced. Lending institutions will be able to recover from the Inland Revenue tax deducted by borrowers.
I am trying to widen that form of provision to cover rate payments by companies to local authorities. Companies that are tax exhausted—that is, not making a corporation taxable profit—would find under my new clause that their rate payments would be reduced by half. The balance would be made up by way of an Exchequer subsidy in lieu of the tax claim that otherwise would be made by the company if it were making a profit.
Companies making profits for corporation tax purposes which were not tax exhausted would have a cash flow benefit in the sense that they would be required to pay not 100 per cent. rate bills on demand, but a lesser amount. When they submitted their accounts and were due to make their corporation tax payments to the Revenue, they would find that they lost the relief that would otherwise be made available to them.
I shall not rehearse the arguments about industrial rates, because they are well known to the House. It is clear from conversations that I have had that the principle that I am seeking to establish in the new clause carries the support of many organisations, and companies to which I have spoken have expressed some interest in the principle. Perhaps I might quote the replies that I received from a number of eminent organisations.

Sir Albert Costain: Will the hon. Gentleman explain the cash flow position of local authorities under his proposals?

Mr. Campbell-Savours: Local authorities should not be affected. They would invoice the Inland Revenue for that which they did not claim direct—the difference between the net payment and the gross demand. They would invoice the Inland Revenue and then be paid the money. The Government's position would not be re-established in terms of any loss of funds until the accounts were due from the company that was making the corporation tax payment and settlement was made.
I want to quote a letter that I received from Spicer and Pegler, chartered accountants in the City. They make regular submissions each year to members of the Finance Bill Committee on matters relating to the Budget Statement. The letter, written by a Mr. Davis, an accountant, says:
I think your proposals would be extremely valuable to all trading companies. Where a company makes taxable profits it would obtain a substantial cash flow advantage. It would get tax relief at 40 per cent. immediately on making the payments of rates to the Local Authority instead of having to wait until nine months after the accounting date when the corporation tax would otherwise become payable. In the case of a company with tax losses there would be an even greater cash flow advantage because under the present system effective tax relief is not obtained until the company makes enough profits to absorb the losses carried forward.
I am not sure"—
I quote also critical comment; it would be pointless to say that everyone supported my new clause, and I shall quote other critical comments—

how sympathetic the Inland Revenue is going to be. They have been significantly unsympathetic towards the 'tax exhausted' company who tries to pay a lower rate of interest on bank borrowings by making use of the distribution provisions of Section 233 of the Taxes Act 1970.
Hon. Members will know that there was considerable discussion on that matter in Committee upstairs.
I come next to the Association of County Councils, which would be directly affected by my new clause. In its letter it says:
I think the Association's view would be"—
it was not in a position to give a formal view, as I was late in providing it with a copy of my new clause—
that any change in the techniques of financing Local Government, for example, the one you suggest, would be better considered within the overall discussion on the Government's Green Paper on Domestic Rates. The Association has placed on record, its wish to see an examination of the whole basis of industrial rating. In the context of such consideration, my initial view suggests that the principles underlying your amendment might well be worth pursuing further.
The secretary of that association felt, following consultations with his friends, that the Government should pursue the matter further.
I also received a reply from the Association of Metropolitan Authorities, which said:
your new clause is drafted with a view to having a neutral effect on local finances, we are concerned that it would not be the case in practice. We would be very wary of part substituting rates with a payment from the Inland Revenue; such a payment could become liable to manipulation or even be treated as some form of grant—with the possibility of strings becoming attached".
11 pm
That is interesting because it is not an attack on the principle and the financial mechanisms with which I have tried to deal in my new clause, but it expresses suspicion of the Inland Revenue. We could deal with it by clear assurances from the Government that my new clause, or a similar arrangement, would be approved.
I received a letter from the Consultative Committee of Accountancy Bodies which provides much material during Finance Bills. As regards my proposal, it said:
It is limited to companies thus affording no relief for non-incorporated businesses"—
I accept that as a criticism—
and many small businesses fall into this category.
Hon. Members on both sides believe that it is healthier for businesses to become incorporated as limited companies in relation to accounting procedures but that they do not receive benefits that they would otherwise receive. Some people are unwilling to recognise them because they involve increased paperwork, but that is no reason for not taking them into account. The letter continues:
There would be administrative difficulties for local authorities which might be overcome if the deduction were to be made on the rate demand by the local authority. This would follow the principle adopted where reliefs are available to charities and similar bodies and would avoid such problems as arithmetical errors and the amount to be deducted where mixed hereditaments are involved. It would also place the scheme on a similar basis to that operated for tax relief on life assurance premiums and that which will be used by the Building Societies under the Finance Bill proposals … While similar in concept to the life assurance and mortgage interest schemes, the proposal breaks new ground in that it extends the principle to the corporate sector whereas the existing schemes, in as much that they give relief to non-taxpayers, no doubt do so on social principles.
The Confederation of British Industry, in its conclusion, states:
a local authority which received money from the Treasury instead of from certain local companies might then argue that as


its rates weren't overloading business they could add to the overall total; secondly, since the money would have to come from the taxpayer in the end this would in itself be an additional load at least partly placed on the business.
Whatever arrangements are made to govern rate payment by companies, that complication will always arise. The CBI's marginal resistance to my scheme might be removed if suitable assurances were given by the Government.
I hope that the Minister will give a considered reply. I have not made an impassioned intervention on the issue because I thought that the Minister might wish to deal with the technical aspects. A number of organisations will hang on his every word. They will want to know how much my proposals will cost. That is a reasonable question, and I hope that the Minister will not exaggerate.
Many hon. Members receive representations from industrialists. Much political flak is involved in rates. Accusations are that Labour councils go in for high rating. My county council is accused of being high-rated, but it is one of the lowest-rated authorities in the United Kingdom. It does not suit political parties to admit that too often. Tonight we ask for sweet reason. I hope that we shall have it.

Mr. Ted Graham: I rise briefly to give support to my hon. Friend the Member for Blackburn (Mr. Straw), who has made out a reasonable case. I am delighted to see present many Conservative Members who have always shown a keen interest in small businesses and professed their intentions inside and outside the House to do all that they can to assist them. They have the opportunity to do that by their voice and vote here tonight.
I listened to the hon. Member for Hertfordshire, South-West (Mr. Page). He asked for a complete package and in the meantime he was not prepared to have whatever might be on offer. What might be on offer, if the Treasury Ministers are so minded, is a marginal easement of the desperate plight of small, as opposed to all, businesses.
No hon. Member will say that any assistance to any segment of the economy would not be gratefully received. New clause 6 seeks to recognise that small businesses are a special case.
My hon. Friend the Member for Blackburn said that those who benefit at the moment by paying 40 per cent. instead of 52 per cent. in corporation tax are grateful. No one would deny that that must be an advantage. However, if at the same time the opportunity to set the rates against tax enables those paying 52 per cent. thereby to pay only 48 per cent. of their rate bill, and those who pay only 40 per cent. tax to pay 60 per cent. of the rate bill, the smaller rate payer is thereby at a disadvantage.
I declare an interest, which may be well known in the House. I am sponsored by the Co-operative movement. I am a director of the Enfield Highway Co-operative Society. I listened carefully to what my hon. Friend the Member for Blackburn said about the special position of various categories of business. It has been verified, not least by the Minister for Local Government and Environmental Services, that productive industries pay less than 1 per cent. of their costs in rates. In retailing the figure is somewhere between 4 and 5 per cent.
In the business that I have some experience in, in 1981 the total rates paid were £296,000 and in 1982 they were £333,000. The Enfield Highway Co-operative Society pays rates to the London boroughs of Enfield, Waltham Forest and Barnet and to Hertfordshire county council.

That is a reasonable geographical and political spread. Although £37,000 more was paid in rates, it merely lifted the percentage from 4·2 per cent. to 4·7 per cent. of the total costs.
When one looks at the same figures and relates the increase in rates to figures for per pound of sales, one finds that the 1981 rate bill was 1·1 per cent. and in 1982 it had increased to 1·2 per cent. Even though £33,000 is hard earned money, the incidence is not great when one looks at the whole.
Although Conservative Members rightly have much to say about the effect of rates on businesses, they do not point out that in the same year, and for the same business, the increase in the on-cost for gas, electricity and telephones is just as big as that for rates. Why do not Conservative Members spend their time ensuring that businesses pay less for gas, electricity and telephones?
I am delighted to see that the hon. Member for Lichfield and Tamworth (Mr. Heddle) is still in his place. He said that businesses complained that they received no services whatever for the rates that they paid. That is absolute nonsense.

Sir William Clark: My hon. Friend did not say that.

Mr. Graham: Tomorrow's edition of Hansard will reveal whose recollection of the hon. Gentleman's speech is correct. The hon. Member for Lichfield and Tamworth does not dispute what I have said. He said that companies received no services whatever in exchange for their rates. However, most businesses—certainly those in my constituency—are very grateful for the services that they receive. They may complain about the cost, but services are provided in the form of education and so on. [Interruption.] Not only the business, but the employee, benefits from the rates. Firms in Enfield and Edmonton benefit from refuse collections, transport, roads and so on. Charges may be too high in terms of value for money, but those ratepayers certainly receive services.
It is generally recognised that the rating system needs to be changed, but the issue must be seen in context. The new clause should De given a fair wind, because it deals with the special problem of the small business. Of course, rates have an important part to play in all businesses, but many of the shops and units in the retail and distributive trades are small. Rates can, therefore, greatly affect the small business. The Government claim that they are encouraging large and small businesses to expand to serve the community. However, in rural and declining and decaying inner city areas fewer and fewer shops remain in business, not least because of the charges that they have to meet.
If the Government were minded to consider ways of encouraging small businesses to remain alive to serve their communities, they would do them a great service. The Government must recognise that the increase in rate poundages has been caused not only by higher costs but by the way in which the Government have shifted the rate support grant from one area to another. The Government have decided that the London borough of Enfield and every other metropolitan area should have less rate support grant than previously. Whether or not the Minister likes the new clause's wording or its thrust, I hope that he will say something to show that he recognises the special problems of small businesses.
I do not decry the armoury of weapons that the Government have made available to encourage small


businesses. The Government did not hesitate to give rate relief to businesses, whatever their size, in enterprise zones. The Government are not averse to taking big steps when dealing with rates. The new clause asks the Government to take a small step, which will make a great deal of difference to the survival of small businesses.

Mr. Wakeham: We have had a good debate on this important subject. I make no complaints about the drafting of the new clause by the hon. Member for Blackburn (Mr. Straw). It is tempting for the Government to look seriously at any new clause designed to assist small businesses. No Government have put the cause of small businesses higher on their list of priorities than we have. We have initiated a large number of measures designed to assist small businesses in the present difficult economic climate.
I understand the anxiety shown by the hon. Member for Blackburn at the level of rates. Although rates are a low percentage of turnover, they are a much higher percentage of gross or net profit margins. Businesses are worried about the level of rates. I do not question the assertion of the hon. Member for Blackburn that the rate bill of small businesses is greater in proportion to their expenses than that of large businesses. However, that cannot go without some elaboration. There is no difference per se. Whichever type of property a business occupies, the basis for charging rates is the same whether the business is big or small. As the hon. Member for Edmonton (Mr. Graham) pointed out, there are a large number of businesses in the retail sector. They occupy more high street properties than factory properties, which have a lower rate assessment. It is the type of business carried out rather than the size of the business that determines the basis on which rates are charged.
I was surprised when the hon. Member for Blackburn said—his words were, that the CBI has not pointed out—that taxation relief is not given for expenditure on rates. When calculating profits liable to tax, companies or self-employed people may deduct allowable business expenses, including rates. It inevitably follows that relief on expenses is at different rates. The main rate of corporation tax is 52 per cent. payable on profits above £225,000 after this year's Finance Bill. If the company has sufficient profits to absorb its allowable expenses it receives relief at 52 per cent. Where companies pay tax at 40 per cent. relief is at 40 per cent. There is nothing unfair about that. It is the logical result of having different rates of tax.
A self-employed person pays tax on his profits at rates varying between 30 per cent. and 60 per cent. He obtains relief accordingly. There is no case to give relief at 60 per cent. to a trader who pays tax at the rate of 30 per cent. We cannot give companies relief for tax that has already been excused.
The new clause seeks to give all companies relief at 52 per cent. for rates only. I do not think that there is a case for this in general and I think that it would be wrong to single out this item rather than wages, interest or any other type of expense. Similarly, why should there be a case for negative tax for companies paying tax at a reduced rate when the new clause provides no help for companies paying no tax at all?
It is difficult to state the precise cost of the new clause, but we estimate that it would be around £50 million.
I should point out, too, that the small profits level of corporation tax is exactly that—a small profits level, not a small business level—so even under the new clause some relief might go to larger companies that have low profits in a given year, perhaps due to high levels of capital investment.
My particular difficulty with the new clause is that I am very unhappy about giving relief at 52 per cent. when the tax liability would be 40 per cent. In effect, it would be a tax refund on tax not paid. When I was a practising accountant, this was done with dividends which were deemed to have suffered tax but had not in fact done so. As the law then stood, ingenious accountants quite legitimately managed to persuade the Inland Revenue to repay the tax that was deemed to have been suffered and considerable abuse took place.
Therefore, while I applaud the hon. Gentleman's wish to assist small businesses, I do not think that the new clause is the right way to do it.
The amendment proposed by the hon. Member for Workington (Mr. Campbell-Savours) has a number of technical deficiencies. I make no criticism on that score. Indeed, as the hon. Gentleman said that he had drafted it himself, he deserves credit for a very good effort. I am sure that he is not worried about the final wording of it, and neither am I.
The hon. Gentleman's scheme attempts to give tax relief to tax-exhausted companies across the board and would be much more expensive to operate. The cost is perhaps slightly more difficult to estimate, but it could be around £500 million, so it is a fairly substantial proposal.
The amendment also suffers from the same objection in principle. We are very unhappy about the idea of giving tax relief when no profits have been made or when expenses are higher than income. The hon. Gentleman perhaps underestimates the degree of flexibility for losses that is already provided in the tax system. If a company makes a trading loss, to which rates may be only one contributory factor, relief is available in three ways. I do not suggest that every company can take advantage of them, but there is some flexibility. First, it may set the loss against other profits in the period of the loss. Secondly, it may set the loss against the profits, broadly speaking, of the immediate tax period. Thirdly, it may carry the loss forward against future profits.
The hon. Gentleman's scheme would be administratively complicated for companies and local authorities as well as for the Revenue. Additional staff would be required to handle repayment claims from local authorities and for companies liable to tax at above the small companies rate.
Under existing arrangements, a company's profits and gains from all sources are charged to tax under a single assessment. The arrangements are administratively straightforward and work well, but the hon. Gentleman's scheme would involve quite a considerable change in that set-up.
My hon. Friend the Member for Folkestone and Hythe (Sir A Costain) was right when he said that such a change would scarcely be welcomed by local authorities. It would seriously affect their cash flow. I agree with the hon. Gentleman that in the long run it would balance itself out except in the case where a company went broke at the beginning, in which case the Exchequer would be landed


with the cost of repayment. But there would be a serious cash flow problem, with up to 40 per cent. of the non-domestic rates being delayed, possibly requiring additional short-term borrowing until the repayment from the Revenue was received.
The proposal would also complicate the administrative procedures of local authorities at a time when they are being asked to cut back on their costs. While I have listened with interest to what the hon. Gentleman said, I do not believe that this is the way for additional help to be provided. I do not believe that we should depart from the computation of business profits by allowing relief at more than 100 per cent. The hon. Gentleman's proposal poses serious administrative difficulties as well as being extremely expensive. I ask the House to reject the new clause.

Mr. Straw: I should like to deal with the central objection to the new clause, which was why one cost—rates—should be singled out for special treatment in this respect and accorded more tax relief than the rate of tax for which the cost would otherwise be liable. The answer is that rates are a special case and are unlike any other cost, leaving aside the national insurance surcharge. Rates are a tax and in that sense are quite distinct from all other costs to which companies are likely to be liable. Although we may argue about the impact of rates on companies, we all accept that one of the problems with business rates is that, unlike most other costs, they are not directly—in some cases they are hardly indirectly—related to total turnover in the way wages and the other costs of running a company are, and therefore can be, if a company runs into temporary difficulties, a substantially greater burden than other costs, where there is greater flexibility.
As a species rates are different because they are a tax, whereas every other cost with which companies have to deal arises in the normal course of business. Moreover, since they are a tax and since expenditure by local government is paid for as to 60 per cent. by central Government, it seems that within the totality of public spending it is justifiable to alter the balance between taxation which is locally paid and taxation which is nationally paid. That is the purpose of the new clauses.
The Minister said that the 40 per cent. rate of tax on corporations was not a small companies rate but a small profits rate. I accept his technical distinction. In some cases it can be more than technical where a large company runs into temporary profit difficulties. In those cases, where the company does run into temporary difficulties and is producing a low rate of return, such as to bring it within the 40 per cent. category, it is acceptable to us that it should be able to enjoy this additional measure of relief on its rate payments. We do not cavil at that.
The cost of this measure is £50 million. That is a relatively modest sum, and it would, in our judgment, provide some important relief for small companies.
This proposal has met with a degree of support from a number of Government supporters. The hon. Member for Hertfordshire, South-West (Mr. Page) applauded the sentiment behind the clauses, as did the hon. Member for Lichfield and Tamworth (Mr. Heddle). The Minister of State applauded me and my right hon. and hon. Friends in wanting to assist small businesses.
We thought about this proposal at some length, and we consulted about it. We believe that it would work and that new clause 6 is not so technically defective as to be

impossible to work. The cost is modest. Since many Conservative Members support it, their best course is for them to join the Opposition in the Division Lobby to ensure that it goes on to the statute book.

Mr. Campbell-Savours: The Minister of State identified the figure of £500 million as an approximate—

Mr. Deputy Speaker (Mr. Paul Dean): Order. Does the hon. Member for Workington (Mr. Campbell-Savours) have the leave of the House? I had not realised that he had spoken before in the debate.

Mr. Campbell-Savours: With the leave of the House, may I make just a couple of remarks about new clause 32?
The Minister of State identified the figure of £500 million as an approximate estimate of the cost of implementing my new clause. It might be better to raise that revenue from the corporate sector to enable this distribution of money to be made in favour of those companies which, in a period of recession, are tax-exhausted and making losses. Will the hon. Gentleman consider that and perhaps communicate his response in a way other than from the Dispatch Box if he needs time to do so?
I drew attention to a number of organisations that I had circulated about the implications of my new clause. Notwithstanding my representations and the points that I drew from my correspondence, will the hon. Gentleman consider consulting some of those bodies to see whether this matter can be pursued further, subject to modification, and whether perhaps we have the embryo of a scheme that would be beneficial to industries and businesses throughout the United Kingdom?

Question put, That the clause be read a Second time:—

The House divided: Ayes 195, Noes 273.

Division No. 264]
[10.12 pm


AYES


Abse, Leo
Dixon, Donald


Allaun, Frank
Dobson, Frank


Alton, David
Dormand, Jack


Archer, Rt Hon Peter
Dubs, Alfred


Ashley, Rt Hon Jack
Duffy, A. E. P.


Ashton, Joe
Dunnett, Jack


Atkinson, N.(H'gey,)
Dunwoody, Hon Mrs G.


Bagier, Gordon A.T.
Eadie, Alex


Barnett, Guy (Greenwich)
Eastham, Ken


Barnett, Rt Hon Joel (H'wd)
Edwards, R. (W'hampt'n S E)


Beith, A. J.
Ellis, R. (NE D'bysh're)


Benn, Rt Hon Tony
Ellis, Tom (Wrexham)


Bennett, Andrew(St'kp't N)
English, Michael


Bidwell, Sydney
Ennals, Rt Hon David


Boothroyd, Miss Betty
Evans, John (Newton)


Bray, Dr Jeremy
Ewing, Harry


Brown, Hugh D. (Provan)
Faulds, Andrew


Brown, Ron (E'burgh, Leith)
Fletcher, Ted (Darlington)


Buchan, Norman
Foot, Rt Hon Michael


Callaghan, Jim (Midd't'n &amp; P)
Forrester, John


Campbell, Ian
Foulkes, George


Campbell-Savours, Dale
Fraser, J. (Lamb'th, N'w'd)


Canavan, Dennis
Freeson, Rt Hon Reginald


Carmichael, Neil
Garrett, John (Norwich S)


Carter-Jones, Lewis
Garrett, W. E. (Wallsend)


Cartwright, John
Ginsburg, David


Clark, Dr David (S Shields)
Golding, John


Clarke, Thomas C'b'dge,A'rie
Graham, Ted


Cocks, Rt Hon M. (B'stol S)
Hamilton, James (Bothwell)


Cohen, Stanley
Hamilton, W. W. (C'tral Fife)


Coleman, Donald
Hardy, Peter


Concannon, Rt Hon J. D.
Harrison, Rt Hon Walter


Cowans, Harry
Hart, Rt Hon Dame Judith


Cox, T. (W'dsw'th, Toot'g)
Hattersley, Rt Hon Roy


Craigen, J. M. (G'gow, M'hill)
Haynes, Frank


Crowther, Stan
Healey, Rt Hon Denis


Cryer, Bob
Heffer, Eric S.


Cunliffe, Lawrence
Hogg, N. (E Dunb't'nshire)


Cunningham, G. (Islington S)
Holland, S. (L'b'th, Vauxh'll)


Cunningham, Dr J. (W'h'n)
Home Robertson, John


Dalyell, Tam
Homewood, William


Davidson, Arthur
Hooley, Frank


Davis, Clinton (Hackney C)
Horam, John


Davis, Terry (B'ham, Stechf'd)
Howell, Rt Hon D.


Deakins, Eric
Hoyle, Douglas


Dean, Joseph (Leeds West)
Hughes, Mark (Durham)


Dewar, Donald
Hughes, Robert (Aberdeen N)





Hughes, Roy (Newport)
Roberts, Allan (Bootle)


Janner, Hon Greville
Roberts, Ernest (Hackney N)


Jay, Rt Hon Douglas
Roberts, Gwilym (Cannock)


John, Brynmor
Robertson, George


Johnson, James (Hull West)
Robinson, G. (Coventry NW)


Johnson, Walter (Derby S)
Rooker, J. W.


Jones, Rt Hon Alec (Rh'dda)
Roper, John


Jones, Barry (East Flint)
Ross, Ernest (Dundee West)


Kaufman, Rt Hon Gerald
Ross, Stephen (Isle of Wight)


Kerr, Russell
Rowlands, Ted


Kilroy-Silk, Robert
Sever, John


Lamond, James
Sheerman, Barry


Leadbitter, Ted
Sheldon, Rt Hon R.


Leighton, Ronald
Shore, Rt Hon Peter


Lestor, Miss Joan
Short, Mrs Renée


Lewis, Ron (Carlisle)
Silkin, Rt Hon J. (Deptford)


Litherland, Robert
Silkin, Rt Hon S. C. (Dulwich)


Lofthouse, Geoffrey
Silverman, Julius


Lyons, Edward (Bradf'd W)
Skinner, Dennis


Mabon, Rt Hon Dr J. Dickson
Soley, Clive


McCartney, Hugh
Spearing, Nigel


McDonald, Dr Oonagh
Spriggs, Leslie


McElhone, Frank
Stallard, A. W.


McGuire, Michael (Ince)
Steel, Rt Hon David


MacKenzie, Rt Hon Gregor
Stewart, Rt Hon D. (W Isles)


McNally, Thomas
Stoddart, David


McTaggart, Robert
Stott, Roger


McWilliam, John
Strang, Gavin


Magee, Bryan
Straw, Jack


Marks, Kenneth
Thomas, Dafydd (Merioneth)


Marshall, Dr Edmund (Goole)
Thorne, Stan (Preston South)


Marshall, Jim (Leicester S)
Tilley, John


Martin, M(G'gow S'burn)
Tinn, James


Mason, Rt Hon Roy
Torney, Tom


Maxton, John
Urwin, Rt Hon Tom


Maynard, Miss Joan
Varley, Rt Hon Eric G.


Mikardo, Ian
Wainwright, E.(Dearne V)


Millan, Rt Hon Bruce
Wainwright, R.(Colne V)


Miller, Dr M. S. (E Kilbride)
Weetch, Ken


Mitchell, Austin (Grimsby)
Welsh, Michael


Morris, Rt Hon A. (W'shawe)
White, Frank R.


Morris, Rt Hon C. (O'shaw)
White, J. (G'gow Pollok)


Morton, George
Whitehead, Phillip


Moyle, Rt Hon Roland
Whitlock, William


Newens, Stanley
Wigley, Dafydd


Oakes, Rt Hon Gordon
Willey, Rt Hon Frederick


O'Halloran, Michael
Williams, Rt Hon A.(S'sea W)


O'Neill, Martin
Wilson, Gordon (Dundee E)


Orme, Rt Hon Stanley
Wilson, Rt Hon Sir H.(H'ton)


Palmer, Arthur
Winnick, David


Park, George
Woodall, Alec


Parker, John
Woolmer, Kenneth


Parry, Robert
Wright, Sheila


Pavitt, Laurie
Young, David (Bolton E)


Penhaligon, David



Race, Reg
Tellers for the Ayes:


Radice, Giles
Mr. Allen McKay and


Rees, Rt Hon M (Leeds S)
Mr. Derek Foster.


Richardson, Jo



Roberts, Albert (Normanton)



NOES


Adley, Robert
Biffen, Rt Hon John


Aitken, Jonathan
Biggs-Davison, Sir John


Alexander, Richard
Blackburn, John


Alison, Rt Hon Michael
Blaker, Peter


Arnold, Tom
Body, Richard


Aspinwall, Jack
Bonsor, Sir Nicholas


Atkins, Rt Hon H.(S'thorne)
Boscawen, Hon Robert


Atkins, Robert(Preston N)
Bottomley, Peter (W'wich W)


Atkinson, David (B'm'th,E)
Bowden, Andrew


Baker, Nicholas (N Dorset)
Boyson, Dr Rhodes


Banks, Robert
Braine, Sir Bernard


Beaumont-Dark, Anthony
Bright, Graham


Bendall, Vivian
Brinton, Tim


Bennett, Sir Frederic (T'bay)
Brittan, Rt. Hon. Leon


Benyon, Thomas (A'don)
Brooke, Hon Peter


Benyon, W. (Buckingham)
Brotherton, Michael


Best, Keith
Browne, John (Winchester)


Bevan, David Gilroy
Bruce-Gardyne, John






Bryan, Sir Paul
Griffiths, E.(B'y St. Edm'ds)


Buchanan-Smith, Rt. Hon. A.
Griffiths, Peter Portsm'th N)


Buck, Antony
Grist, Ian


Budgen, Nick
Grylls, Michael


Bulmer, Esmond
Gummer, John Selwyn


Burden, Sir Frederick
Hamilton, Hon A.


Butcher, John
Hamilton, Michael (Salisbury)


Cadbury, Jocelyn
Hampson, Dr Keith


Carlisle, John (Luton West)
Hannam, John


Carlisle, Kenneth (Lincoln)
Haselhurst, Alan


Carlisle, Rt Hon M. (R'c'n)
Hastings, Stephen


Chalker, Mrs. Lynda
Havers, Rt Hon Sir Michael


Channon, Rt. Hon. Paul
Hawksley, Warren


Chapman, Sydney
Hayhoe, Barney


Churchill, W. S.
Heddle, John


Clark, Hon A. (Plym'th, S'n)
Heseltine, Rt Hon Michael


Clark, Sir W. (Croydon S)
Hicks, Robert


Clarke, Kenneth (Rushcliffe)
Higgins, Rt Hon Terence L.


Cockeram, Eric
Hill, James


Colvin, Michael
Hogg, Hon Douglas (Gr'th'm)


Cope, John
Holland, Philip (Carlton)


Costain, Sir Albert
Hordern, Peter


Cranborne, Viscount
Howell, Rt Hon D. (G'ldf'd)


Critchley, Julian
Howell, Ralph (N Norfolk)


Crouch, David
Hunt, David (Wirral)


Dickens, Geoffrey
Hunt, John (Ravensbourne)


Dorrell, Stephen
Irvine, Bryant Godman


Douglas-Hamilton, Lord J.
Irving, Charles (Cheltenham)


Dover, Denshore
Jenkin, Rt Hon Patrick


du Cann, Rt Hon Edward
Jessel, Toby


Dunn, Robert (Dartford)
Johnson Smith, Sir Geoffrey


Durant, Tony
Jopling, Rt Hon Michael


Eden, Rt Hon Sir John
Joseph, Rt Hon Sir Keith


Edwards, Rt Hon N. (P'broke)
Kaberry, Sir Donald


Eggar, Tim
Kershaw, Sir Anthony


Elliott, Sir William
Kimball, Sir Marcus


Eyre, Reginald
Knight, Mrs Jill


Fairbairn, Nicholas
Knox, David


Fairgrieve, Sir Russell
Lamont, Norman


Faith, Mrs Sheila
Lang, Ian


Farr, John
Latham, Michael


Fell, Sir Anthony
Lawrence, Ivan


Fenner, Mrs Peggy
Lawson, Rt Hon Nigel


Finsberg, Geoffrey
Lee, John


Fisher, Sir Nigel
Lennox-Boyd, Hon Mark


Fletcher, A. (Ed'nb'gh N)
Lester, Jim (Beeston)


Fletcher-Cooke, Sir Charles
Lewis, Kenneth (Rutland)


Fookes, Miss Janet
Lloyd, Ian (Havant &amp; W'loo)


Forman, Nigel
Lloyd, Peter (Fareham)


Fowler, Rt Hon Norman
Loveridge, John


Fox, Marcus
Luce, Richard


Fraser, Peter (South Angus)
Lyell, Nicholas


Fry, Peter
Macfarlane, Neil


Gardner, Edward (S Fylde)
MacGregor, John


Garel-Jones, Tristan
MacKay, John (Argyll)


Glyn, Dr Alan
Macmillan, Rt Hon M.


Goodhart, Sir Philip
McNair-Wilson, M. (N'bury)


Goodhew, Sir Victor
McNair-Wilson, P. (New F'st)


Goodlad, Alastair
Major, John


Gorst, John
Marland, Paul


Gow, Ian
Marten, Rt Hon Neil


Grant, Anthony (Harrow C)
Maude, Rt Hon Sir Angus


Gray, Hamish
Mawby, Ray


Greenway, Harry
Mawhinney, Dr Brian




Maxwell-Hyslop, Robin
Shepherd, Richard


Mayhew, Patrick
Shersby, Michael


Mellor, David
Silvester, Fred


Mills, Iain (Meriden)
Sims, Roger


Mills, Sir Peter (West Devon)
Skeet, T. H. H.


Miscampbell, Norman
Smith, Dudley


Mitchell, David (Basingstoke)
Smith, Tim (Beaconsfield)


Moate, Roger
Speed, Keith


Montgomery, Fergus
Speller, Tony


Moore, John
Spence, John


Morris, M. (N'hampton S)
Spicer, Jim (West Dorset)


Morrison, Hon C. (Devizes)
Spicer, Michael (S Worcs)


Morrison, Hon P. (Chester)
Sproat, Iain


Mudd, David
Squire, Robin


Murphy, Christopher
Stainton, Keith


Myles, David
Stanbrook, Ivor


Neale, Gerrard
Stanley, John


Needham, Richard
Steen, Anthony


Nelson, Anthony
Stevens, Martin


Neubert, Michael
Stewart, A.(E Renfrewshire)


Newton, Tony
Stewart, Ian (Hitchin)


Normanton, Tom
Stokes, John


Onslow, Cranley
Stradling Thomas, J.


Oppenheim, Rt Hon Mrs S.
Tapsell, Peter


Osborn, John
Taylor, Teddy (S'end E)


Page, John (Harrow, West)
Tebbit, Rt Hon Norman


Page, Richard (SW Herts)
Temple-Morris, Peter


Parkinson, Rt Hon Cecil
Thomas, Rt Hon Peter


Parris, Matthew
Thompson, Donald


Patten, John (Oxford)
Thorne, Neil (Ilford South)


Pawsey, James
Thornton, Malcolm


Percival, Sir Ian
Townend, John (Bridlington)


Peyton, Rt Hon John
Townsend, Cyril D, (B'heath)


Pink, R. Bonner
Trippier, David


Pollock, Alexander
Trotter, Neville


Porter, Barry
van Straubenzee, Sir W.


Prentice, Rt Hon Reg
Vaughan, Dr Gerard


Price, Sir David (Eastleigh)
Viggers, Peter


Proctor, K. Harvey
Waddington, David


Raison, Rt Hon Timothy
Wakeham, John


Rathbone, Tim
Waldegrave, Hon William


Rees, Peter (Dover and Deal)
Walker, Rt Hon P.(W'cester)


Rees-Davies, W. R.
Waller, Gary


Renton, Tim
Walters, Dennis


Rhodes James, Robert
Ward, John


Rhys Williams, Sir Brandon
Warren, Kenneth


Ridley, Hon Nicholas
Watson, John


Ridsdale, Sir Julian
Wells, Bowen


Rifkind, Malcolm
Wheeler, John


Roberts, M. (Cardiff NW)
Whitney, Raymond


Roberts, Wyn (Conway)
Wickenden, Keith


Rossi, Hugh
Wilkinson, John


Rost, Peter
Winterton, Nicholas


Royle, Sir Anthony
Wolfson, Mark


Rumbold, Mrs A. C. R.
Young, Sir George (Acton)


Sainsbury, Hon Timothy
Younger, Rt Hon George


St. John-Stevas, Rt Hon N.



Scott, Nicholas
Tellers for the Noes:


Shaw, Giles (Pudsey)
Mr. Anthony Berry and


Shelton, William (Streatham)
Mr. Carol Mather.


Shepherd, Colin (Hereford)

Division No. 265]
[11.32 pm


AYES


Abse, Leo
Cowans, Harry


Allaun, Frank
Cox, T. (W'dsw'th, Toot'g)


Alton, David
Craigen, J. M. (G'gow, M'hill)


Archer, Rt Hon Peter
Crowther, Stan


Ashley, Rt Hon Jack
Cryer, Bob


Ashton, Joe
Cunningham, Dr J. (W'h'n)


Atkinson, N.(H'gey,)
Dalyell, Tam


Bagier, Gordon A.T.
Davidson, Arthur


Barnett, Guy (Greenwich)
Davis, Clinton (Hackney C)


Barnett, Rt Hon Joel (H'wd)
Davis, Terry (B'ham, Stechf'd)


Beith, A. J.
Deakins, Eric


Benn, Rt Hon Tony
Dean, Joseph (Leeds West)


Bennett, Andrew(St'kp't N)
Dewar, Donald


Bidwell, Sydney
Dixon, Donald


Booth, Rt Hon Albert
Dobson, Frank


Boothroyd, Miss Betty
Dormand, Jack


Bray, Dr Jeremy
Dubs, Alfred


Brown, Hugh D. (Provan)
Duffy, A. E. P.


Brown, Ron (E'burgh, Leith)
Dunnett, Jack


Buchan, Norman
Dunwoody, Hon Mrs G.


Callaghan, Jim (Midd't'n &amp; P)
Eadie, Alex


Campbell, Ian
Eastham, Ken


Campbell-Savours, Dale
Edwards, R. (W'hampt'n S E)


Canavan, Dennis
Ellis, R. (NE D'bysh're)


Carmichael, Neil
Ellis, Tom (Wrexham)


Carter-Jones, Lewis
English, Michael


Clark, Dr David (S Shields)
Ennals, Rt Hon David


Clarke, Thomas C'b'dge,A'rie
Evans, John (Newton)


Cocks, Rt Hon M. (B'stol S)
Faulds, Andrew


Cohen, Stanley
Fletcher, Ted (Darlington)


Coleman, Donald
Foot, Rt Hon Michael


Concannon, Rt Hon J. D.
Forrester, John


Cook, Robin F.
Foster, Derek






Foulkes, George
O'Neill, Martin


Fraser, J. (Lamb'th, N'w'd)
Orme, Rt Hon Stanley


Freeson, Rt Hon Reginald
Palmer, Arthur


Garrett, John (Norwich S)
Park, George


Garrett, W. E. (Wallsend)
Parker, John


Golding, John
Parry, Robert


Graham, Ted
Pavitt, Laurie


Hamilton, James (Bothwell)
Penhaligon, David


Hardy, Peter
Race, Reg


Harrison, Rt Hon Walter
Radice, Giles


Hart, Rt Hon Dame Judith
Rees, Rt Hon M (Leeds S)


Hattersley, Rt Hon Roy
Richardson, Jo


Haynes, Frank
Roberts, Allan (Bootle)


Healey, Rt Hon Denis
Roberts, Ernest (Hackney N)


Heffer, Eric S.
Roberts, Gwilym (Cannock)


Hogg, N. (E Dunb't'nshire)
Robertson, George


Holland, S. (L'b'th, Vauxh'll)
Robinson, G. (Coventry NW)


Homewood, William
Rooker, J. W.


Hooley, Frank
Ross, Ernest (Dundee West)


Horam, John
Rowlands, Ted


Howell, Rt Hon D.
Sever, John


Hoyle, Douglas
Sheerman, Barry


Hughes, Mark (Durham)
Sheldon, Rt Hon R.


Hughes, Robert (Aberdeen N)
Shore, Rt Hon Peter


Hughes, Roy (Newport)
Short, Mrs Renée


Janner, Hon Greville
Silkin, Rt Hon J. (Deptford)


Jay, Rt Hon Douglas
Silkin, Rt Hon S. C. (Dulwich)


John, Brynmor
Silverman, Julius


Johnson, James (Hull West)
Skinner, Dennis


Johnson, Walter (Derby S)
Soley, Clive


Jones, Rt Hon Alec (Rh'dda)
Spearing, Nigel


Jones, Barry (East Flint)
Spriggs Leslie


Kaufman, Rt Hon Gerald
Stallard, A. W.


Kerr, Russell
Steel, Rt Hon David


Kilroy-Silk, Robert
Stoddart, David


Lamond, James
Stott, Roger


Leadbitter, Ted
Strang, Gavin


Leighton, Ronald
Straw, Jack


Lestor, Miss Joan
Thomas, Dafydd (Merioneth)


Lewis, Ron (Carlisle)
Thorne, Stan (Preston South)


Litherland, Robert
Tilley, John


Lofthouse, Geoffrey
Tinn, James


Lyons, Edward (Bradf'd W)
Torney, Tom


McCartney, Hugh
Urwin, Rt Hon Tom


McDonald, Dr Oonagh
Varley, Rt Hon Eric G.


McElhone, Frank
Wainwright, E.(Dearne V)


McGuire, Michael (Ince)
Wainwright, R.(Colne V)


McKay, Allen (Penistone)
Weetch, Ken


MacKenzie, Rt Hon Gregor
Welsh, Michael


McTaggart, Robert
White, Frank R.


McWilliam, John
White, J. (G'gow Pollok)


Marks, Kenneth
Whitehead, Phillip


Marshall, Dr Edmund (Goole)
Whitlock, William


Marshall, Jim (Leicester S)
Wigley, Dafydd


Martin, M(G'gow S'burn)
Willey, Rt Hon Frederick


Mason, Rt Hon Roy
Williams, Rt Hon A.(S'sea W)


Maxton, John
Wilson, Gordon (Dundee E)


Maynard, Miss Joan
Winnick, David


Mikardo, Ian
Woodall, Alec


Millan, Rt Hon Bruce
Woolmer, Kenneth


Miller, Dr M. S. (E Kilbride)
Wright, Sheila


Mitchell, Austin (Grimsby)
Young, David (Bolton E)


Morris, Rt Hon A. (W'shawe)



Morris, Rt Hon C. (O'shaw)
Tellers for the Ayes:


Moyle, Rt Hon Roland
Mr. Lawrence Cunliffe and


Newens, Stanley
Mr. George Morton.


Oakes, Rt Hon Gordon



NOES


Adley, Robert
Bennett, Sir Frederic (T'bay)


Aitken, Jonathan
Benyon, Thomas (A'don)


Alexander, Richard
Benyon, W. (Buckingham)


Alison, Rt Hon Michael
Best, Keith


Arnold, Tom
Bevan, David Gilroy


Aspinwall, Jack
Biffen, Rt Hon John


Atkins, Robert(Preston N)
Biggs-Davison, Sir John


Atkinson, David (B'm'th,E)
Blackburn, John


Baker, Nicholas (N Dorset)
Blaker, Peter


Banks, Robert
Body, Richard


Beaumont-Dark, Anthony
Bonsor, Sir Nicholas





Boscawen, Hon Robert
Hampson, Dr Keith


Bottomley, Peter (W''wich W)
Hannam, John


Bowden, Andrew
Haselhurst, Alan


Boyson, Dr Rhodes
Hastings, Stephen


Braine, Sir Bernard
Havers, Rt Hon Sir Michael


Bright, Graham
Hayhoe, Barney


Brinton, Tim
Heddle, John


Brittan, Rt. Hon. Leon
Heseltine, Rt Hon Michael


Brooke, Hon Peter
Hicks, Robert


Brotherton, Michael
Higgins, Rt Hon Terence L.


Browne, John (Winchester)
Hill, James


Bruce-Gardyne, John
Hogg, Hon Douglas (Gr'th'm)


Bryan, Sir Paul
Holland, Philip (Carlton)


Buchanan-Smith, Rt. Hon. A.
Hordern, Peter


Buck, Antony
Howell, Rt Hon D. (G'ldf'd)


Budgen, Nick
Howell, Ralph (N Norfolk)


Bulmer, Esmond
Hunt, David (Wirral)


Butcher, John
Hunt, John (Ravensbourne)


Cadbury, Jocelyn
Irvine, Bryant Godman


Carlisle, Kenneth (Lincoln)
Irving, Charles (Cheltenham)


Carlisle, Rt Hon M. (R'c'n)
Jenkin, Rt Hon Patrick


Chalker, Mrs. Lynda
Jessel, Toby


Channon, Rt. Hon. Paul
Johnson Smith, Sir Geoffrey


Chapman, Sydney
Jopling, Rt Hon Michael


Churchill, W. S.
Joseph, Rt Hon Sir Keith


Clark, Hon A. (Plym'th, S'n)
Kaberry, Sir Donald


Clark, Sir W. (Croydon S)
Kershaw, Sir Anthony


Clarke, Kenneth (Rushcliffe)
Kimball, Sir Marcus


Cockeram, Eric
King, Rt Hon Tom


Colvin, Michael
Knight, Mrs Jill


Cope, John
Knox, David


Costain, Sir Albert
Lamont, Norman


Cranborne, Viscount
Lang, Ian


Critchley, Julian
Latham, Michael


Crouch, David
Lawrence, Ivan


Dickens, Geoffrey
Lee, John


Dorrell, Stephen
Lennox-Boyd, Hon Mark


Douglas-Hamilton, Lord J.
Lester, Jim (Beeston)


Dover, Denshore
Lewis, Kenneth (Rutland)


du Cann, Rt Hon Edward
Lloyd, Ian (Havant &amp; W'loo)


Dunn, Robert (Dartford)
Lloyd, Peter (Fareham)


Durant, Tony
Loveridge, John


Eden, Rt Hon Sir John
Luce, Richard


Edwards, Rt Hon N. (P'broke)
Lyell, Nicholas


Eggar, Tim
Macfarlane, Neil


Elliott, Sir William
MacGregor, John


Eyre, Reginald
MacKay, John (Argyll)


Fairbairn, Nicholas
Macmillan, Rt Hon M.


Fairgrieve, Sir Russell
McNair-Wilson, M. (N'bury)


Faith, Mrs Sheila
McNair-Wilson, P. (New F'st)


Farr, John
Major, John


Fell, Sir Anthony
Marland, Paul


Fenner, Mrs Peggy
Marten, Rt Hon Neil


Finsberg, Geoffrey
Maude, Rt Hon Sir Angus


Fisher, Sir Nigel
Mawby, Ray


Fletcher, A. (Ed'nb'gh N)
Mawhinney, Dr Brian


Fletcher-Cooke, Sir Charles
Maxwell-Hyslop, Robin


Fookes, Miss Janet
Mayhew, Patrick


Forman, Nigel
Mellor, David


Fowler, Rt Hon Norman
Miller, Hal (B'grove)


Fox, Marcus
Mills, Iain (Meriden)


Fraser, Peter (South Angus)
Mills, Sir Peter (West Devon)


Fry, Peter
Miscampbell, Norman


Gardner, Edward (S Fylde)
Mitchell, David (Basingstoke)


Garel-Jones, Tristan
Moate, Roger


Glyn, Dr Alan
Montgomery, Fergus


Goodhart, Sir Philip
Moore, John


Goodhew, Sir Victor
Morris, M. (N'hampton S)


Goodlad, Alastair
Morrison, Hon C. (Devizes)


Gorst, John
Morrison, Hon P. (Chester)


Grant, Anthony (Harrow C)
Mudd, David


Gray, Hamish
Murphy, Christopher


Greenway, Harry
Myles, David


Griffiths, E.(B'y St. Edm'ds)
Neale, Gerrard


Griffiths, Peter Portsm'th N)
Needham, Richard


Grist, Ian
Neubert, Michael


Grylls, Michael
Newton, Tony


Gummer, John Selwyn
Normanton, Tom


Hamilton, Hon A.
Onslow, Cranley


Hamilton, Michael (Salisbury)
Osborn, John






Page, John (Harrow, West)
Squire, Robin


Page, Richard (SW Herts)
Stainton, Keith


Parkinson, Rt Hon Cecil
Stanbrook, Ivor


Parris, Matthew
Stanley, John


Patten, John (Oxford)
Steen, Anthony


Pawsey, James
Stevens, Martin


Percival, Sir Ian
Stewart, A.(E Renfrewshire)


Pink, R. Bonner
Stewart, Ian (Hitchin)


Pollock, Alexander
Stokes, John


Porter, Barry
Stradling Thomas, J.


Prentice, Rt Hon Reg
Tapsell, Peter


Price, Sir David (Eastleigh)
Taylor, Teddy (S'end E)


Proctor, K. Harvey
Tebbit, Rt Hon Norman


Raison, Rt Hon Timothy
Temple-Morris, Peter


Rathbone, Tim
Thomas, Rt Hon Peter


Rees, Peter (Dover and Deal)
Thompson, Donald


Rees-Davies, W. R.
Thorne, Neil (Ilford South)


Renton, Tim
Townend, John (Bridlington)


Rhodes James, Robert
Townsend, Cyril D, (B'heath)


Rhys Williams, Sir Brandon
Trippier, David


Ridley, Hon Nicholas
Trotter, Neville


Ridsdale, Sir Julian
van Straubenzee, Sir W.


Rifkind, Malcolm
Vaughan, Dr Gerard


Roberts, M. (Cardiff NW)
Viggers, Peter


Roberts, Wyn (Conway)
Waddington, David


Rossi, Hugh
Wakeham, John


Rost, Peter
Waldegrave, Hon William


Royle, Sir Anthony
Walker, Rt Hon P.(W'cester)


Rumbold, Mrs A. C. R.
Waller, Gary


Sainsbury, Hon Timothy
Walters, Dennis


St. John-Stevas, Rt Hon N.
Ward, John


Scott, Nicholas
Warren, Kenneth


Shaw, Giles (Pudsey)
Watson, John


Shelton, William (Streatham)
Wells, Bowen


Shepherd, Colin (Hereford)
Wells, John (Maidstone)


Shepherd, Richard
Wheeler, John


Shersby, Michael
Whitney, Raymond


Silvester, Fred
Wickenden, Keith


Sims, Roger
Wilkinson, John


Skeet, T. H. H.
Winterton, Nicholas


Smith, Dudley
Wolfson, Mark


Smith, Tim (Beaconsfield)
Young, Sir George (Acton)


Speed, Keith
Younger, Rt Hon George


Speller, Tony



Spence, John
Tellers for the Noes:


Spicer, Jim (West Dorset)
Mr. Anthony Berry and


Spicer, Michael (S Worcs)
Mr. Carol Mather.


Sproat, Iain

Question accordingly negatived.

New Clause 10

ISSUE OF VALUE ADDED LOAN STOCK

'(1) The payments of interest by a company in respect of an issue of loan stock offered in accordance with the provisions of this section and the premiums paid on the redemption of that stock shall be deemed to be charges on the company which are allowable for the calculation of the corporation tax due to be paid by the company and shall not be taken to constitute a distribution as defined by section 233 of the Taxes Act 1970.

(2) For the purpose of this section "value added loan stock" means a loan stock with a stated repayment date in respect of which the amounts of the distributions to be paid from time to time shall be fixed at the time of issue in accordance with a published formula by reference to the amount of the value added by the company in the accounting reference period in respect of which each distribution is made, and the terms of the repayment shall be fixed in accordance with a published formula by reference to the amount of the value added by the company in the five last accounting reference periods before the repayment falls due.'.—[Sir Brandon Rhys Williams.]

Brought up, and read the First time.

Sir Brandon Rhys Williams: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to take the following:

New Clause 36—Index-linked Preference Shares:

`(1) References in the Corporation Tax Acts to distributions of a company shall not include references to a payment made by a company on the redemption of its own shares if—

(a) the company is an unquoted company and either a trading company or the holding company of a trading group; and
(b) the shares are index-linked preference shares.

(2) "Index-linked preference shares" are shares which—

(a) are issued for consideration which is new consideration; and
(b) do not carry right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities; and
(c) do not carry any right to dividends other than dividends which—

(i) are of a fixed amount or at a fixed rate per cent. of the nominal value of the shares; and
(ii) represent no more than a reasonable commercial return on the new consideration received by the company in respect of the issue of the shares; and

(d) on repayment do not carry any rights except a right to an amount equal to that new consideration multiplied by a figure expressed as a decimal and determined by the formular RD ÷ RI where—

RD is the retail prices index for the month in which the purchase occurs; and
RI is the retail prices index for the month in which that new consideration was given;
Provided that—
if RD is less than RI, RD shall be taken as equal to RI; and
if the figure determined above would, apart from this limitation, be a figure having more than three decimal places, it shall be limited to three decimal places rounded to the nearest third decimal place.


(3) "The retail prices index' shall have the meaning given by subsection 8 of section 24 of the Finance Act 1980.
(4) "New consideration" shall have the meaning given by subsection (1) of section 237 of the Income and Corporation Taxes Act 1970.
(5) Shares issued by a company shall be deemed to he index-linked preference shares if, before they are issued, the Board have on the application of the company notified the company that they are satisfied that the shares are index-linked preference shares.
(6) An application under this paragraph shall be in writing and shall contain particulars of the relevant transactions; and the Board may, within thirty days of the receipt of the application or of any further particulars previously required under this sub-paragraph, by notice require the applicant to furnish further particulars for the purpose of enabling the Board to make their decision.
(7) If a notice under sub-paragraph (6) above is not complied with within thirty days or such longer period as the Board may allow, the Board need not proceed further on the application.
(8) The Board hall notify their decision to the applicant within thirty days of receiving the application or, if they give a notice under sub-paragraph (6) above, within thirty days of the notice being complied with.
(9) If particulars furnished under this paragraph do not fully and accurately disclose all facts and circumstances material for the decision of the Board, any resulting notification that the Board are satisfied that this section will apply shall be void.'.

New Clause 141—Deep discounted and indexed securities:

`(1) References in the Corporation Tax Acts to distributions of a company shall not include references to a payment made by a company on the redemption repayment or purchase of its own securities (and notwithstanding that such payment exceeds the aggregate consideration received by the company for such securities) if such securities have been issued upon terms approved by the Board.
(2) Any excess of any such payment as is referred to in the immediately preceding subsection over the aggregate consideration received by the company concerned for the related securities shall be included:—



(a) in the sums to be deducted in computing for the purposes of Schedule D the profits or gains of a trade carried on by that company; or
(b) if that company is an investment company within the meaning of section 304 of the Taxes Act or a company in the case of which that section applies by virtue of section 305 of that Act, in the sums to be deducted as expenses of management in computing the profits of the company for the purposes of corporation tax;

and may be so included in any year (notwithstanding that no actual payment shall have been made) in an amount not exceeding that part of the total such excess so payable as, after deducting the aggregate amount (if any) previously so paid, equals such total multiplied by a fraction of which the denominator is the maximum integral number of years between the issue of the security concerned and the latest date for its redemption and the numerator is the integral number of such years that have elapsed.
(3) The board may make such regulations as it considers expedient for any purpose connnected with or incidental to this section; and any such regulations shall be made by statutory instrument subject to annulment in pursuance of a resolution of the Commons House of Parliament.'.

Sir Brandon Rhys Williams: The object of the new clause is to enable firms to issue long-term bonds, without undue risk to themselves, which will also give a fair return to the investor, whatever happens about the rate of inflation.
The dilemma at the moment is that companies which are in debt to the bank, want to expand and need to borrow money on a long-term basis, cannot shrewdly increase their bank debt and, being unable to predict their rate of profit in the long run because of circumstances which are very difficult to foresee, they cannot go out to the market for an equity issue either. The outcome of that dilemma in all too many cases is that companies which ought to be investing, which have good projects which should be receiving support, are postponing their decisions from one year to the next, and the general level of investment in the corporate sector is far too low.
We see from the Corporation Tax Green Paper, which was published earlier this year, that the average net rate of return on capital outside the oil and gas sector, which was 11 per cent. in 1965, had fallen to only 3 per cent. in 1980. That is a measure of the difficulty for firms which want to raise money in the conventional way by the issue of equity shares. Their profits are simply not large enough to justify their doing so. In current cost terms, the return of many companies is probably less even than 3 per cent. now. Yet, if those businesses are to survive, they have to invest in modern equipment. The problem must be solved.
Looking at the way in which the Government finance their own projects, we see that they currently raise capital with yields of 12, 13 or 14 per cent. on conventional dividend and repayment terms, but, with the innovation of Government-indexed stock, we see that they are able to raise money without undue difficulty with a return to the investor of only 3 per cent. It is obvious from that evidence that the market requires a real interest rate of only about 3 per cent., even in present circumstances, but insists on a further 10 per cent. or more, which constitutes a repayment of capital or some kind of inflation insurance on top of the real rate of interest.
The Government, having entered the market for inflation-protected investment, ought to allow private businesses to enter the same sector as well.
It is difficult for firms to rely on long-term fixed interest stocks in the way that the Government do by issuing debentures or preference shares and paying the very high rate of interest that the market would demand. It would, in effect, constitute a large repayment of the loan in the early years. If companies had to repay at 14, 15, 18 or perhaps even 20 per cent., they would be burdening themselves in the early years of repayment with more than they could hope to produce from their new investment, unless they had some exceptional and highly sparkling project for which they needed the money. That type of speculative and adventurous investment is not what I am concerned with here.
In any event, if a company raises money on fixed interest terms with such a high yield, it is bound to be gambling to some extent on the rate of depreciation of the currency before the final repayment falls due, and that is not a healthy form of finance.
In the past month there has been an interesting new departure in this area. We know that the Government are aware of the problem and are seeking to do something about it. The Government have declared themselves willing to help companies which want to issue what are called deep discount or zero coupon bonds—that is, companies which are willing to pay back capital to their investors rather than dividends. They give their investors a capital gain at the end of a fixed period rather than a regular dividend or return on their bonds from year to year. Some companies in special positions might find that concession attractive. We know of funds that are looking for suitable investments under Islamic rules, and which are queasy about accepting a return from the borrower that has the character of interest. However, they do not feel the same compunction about taking capital gains when the loan is finally repaid. I am glad that in the London market it will be possible, when the Government have fulfilled their promises, for borrowers and lenders to come together in that type of arrangement under new and favourable tax provisions.
The Government's assumption is that management, in raising long-term money, is willing to take a view on the rate of inflation during the life of the loan and is willing to risk the company's future if the estimate proves to be too high. When the issue is made, the company is already committed to a sum that must be repaid in due course. That sum may be easy to pay if inflation rises again and the currency depreciates, but, if the Government are more successful in reducing inflation than the company has reckoned, the burden of debt through issuing such a bond will also be higher than the company has reckoned and that will make this type of borrowing a speculative and dangerous method of obtaining long-term finance.
The majority of British companies that wish to raise long-term finance have managements that are looking for funds because they are confident of their company's ability to hold its own in the long run, but they do not know for certain how to anticipate the depreciation of the currency and they are not confident that they can make a useful profit for distribution every year. They wish to find a way of raising money that is fair to borrowers and attractive to lenders, whatever happens to the rate of depreciation of the currency.
We must make it possible for such companies to issue what one may call "dynamised" debentures, which will be a genuine prior charge on the company's performance but


will be expressed in terms that adapt automatically year by year to the changes in the value of money. That is the gap in the structure of corporate finance that must be restored.
Before the Second World War, the great majority of publicly quoted companies had debentures or preference shares as part of their capital structure. If they were faced with the dilemma that companies now face, the natural thing was to raise money through the issue of debentures, especially if they could secure that issue on a project with an intrinsic value, such as an extension to a factory. That is not possible now because the market does not readily entrust itself in the long term to debentures that return only a fixed dividend regardless of inflation.
If we allow companies to issue a dynamised debenture, there will be a regular rise in the price of the share in the investor's portfolio. When I moved a similar new clause on Report of the Finance Bill last year, that was an additional obstacle to the Government making way for such a proposal, because the investor was liable to a capital gain on the paper profits that he would make through the automatic increase in the dividend with the passage of time. The Government have had the foresight this year to recognise that capital gains tax is a levy on capital that should be ended. That obstacle has accordingly been removed. The difficulty still remains that debenture interest was, and still is, recognised as a charge before the calculation of corporation tax. If, however, it were to be dynamised, it would be held by the Revenue not to constitute debenture interest any more but to be a distribution of profit. This is the obstacle that the Government should remove.
Bank debt—both the real interest and the inflation protection elements—is recognised as a prior charge on a company and is accepted as an element that has to be deducted before the calculation of the company's liability to corporation tax. A payment of dynamised debenture interest, provided that it was dynamised by a recognisable and acceptable formula, should also be recognised as interest and a genuine prior charge. It should not be regarded as a distribution of profits for the calculation of the company's tax liability.
I should like to mention the position of equity holders if a company decided to issue this type of stock. It might be held that the equity owners would be pushed into a lower status because a new class of investor would appear above them in the company's priorities. That would be a complete misreading of the situation. If a company needs to invest and has to get the funds from somewhere, it is desirable that it should be able to do so on favourable interest rate terms. If its judgment is right and the project in which it seeks to invest is going to be profitable in the long run, the equity holders will have the whole of the benefit beyond the prior charge element that goes to the service of the capital by the arrangement that the company makes when it issues the original loan.
Most people, when they think of indexation, fly to the retail price index as the natural index to use. That has been the course followed by the Government in respect of the indexed loans issued in recent months. My view is that the retail price index is the most dangerous index to use. It can have a most malignant effect, as we have seen in Italy, Belgium and other countries recently where the RPI has been used excessively. An undertaking that links its liabilities to the retail price index, which it cannot control, may well find itself in due course with a commitment that it cannot meet. It is like borrowing short and lending long;

it is inherently unsound. Therefore, I am not recommending that companies should be encouraged to use the retail price index as the method of dynamising their debentures. We need to find a benign index which means that, whatever happens about inflation, it will always be within the capacity of the borrower to meet his obligations.
The value added by the company seems the natural measure of its capacity to pay its debts year in year out; or accountants may prefer to use the turnover. That is a matter for experts. I recognise that it would be difficult to prevent abuse, but it is for investors to examine closely the terms of the issue before they entrust their money to the company.
I wish now to deal with the tax avoidance minefield. I understand that section 233 of the Income and Corporation Taxes Act 1970 was introduced to prevent companies from declaring a dividend and calling it a prior change for the calculation of corporation tax. That was an understandable provision. What has now become clause 55 on emergence from Standing Committee is a provision to catch firms which, in collusion with their banks, are borrowing on terms that make interest look like a distribution. That enables the bank to take advantage of its own tax position and share the benefit with the borrower. I understand that was also an abuse that my right hon. and hon. Friends felt needed to be tackled.
I cannot discern that the Government have made a concession in clause 55 that enables firms to do precisely what I am seeking to make it possible for them to do in new clause 10. If my hon. Friend is able to convince me of that, I shall, of course, be delighted, but it does riot seem to me, however I read it, that they can put that meaning on it. In any event, I am concerned not with special circumstances, but with an extremely common problem that is threatening our economy. I am asking not for a tax concession but for justice for borrowers and lenders alike in the face of the deterioration of the paper currency, which is not any fault of theirs.
New clause 10 would open the way for the revival of long-term corporate bonds which were an essential source of funds for public companies before successive Governments allowed inflation to undermine the capital market. I hope that my right hon. and hon. Friends will recognise that the problem exists and will say that it must be solved, at the latest, in next year's Budget.

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Mr. Horam: New clause 36, in my name and that of my hon. Friends, seeks to tackle the same problem as that outlined by the hon. Member for Kensington (Sir B. Rhys Williams) but front a slightly different angle. Its purpose is to ensure that if index-linked preference shares were issued by a company the money that the holders of those shares received when they cashed them in at the end of their lives would not be treated as income for income tax purposes. It would be subject to capital gains tax, but as this is to be indexed after a fashion as a result of the Finance Bill they would not have to pay much there. Some shares would therefore become an attractive place for people to put their money and industry could be helped.
We have limited the new clause to unquoted companies because they often need this help most as their capacity to borrow is most restrained, and one has to start somewhere with what is a fairly radical innovation.
Another advantage of this approach would be that it would enable a company to extend its equity without


changing control, which would mean that it could borrow more from banks without affecting the equity ratio too much. Therefore, an extra instrument would be available to the small company to borrow in certain circumstances, which is comparable to the type of instrument that the Government have steadily been making more and more available to themselves, particularly the instrument of indexation.
It is important to bring back the individual lender, as Graham Searjeant said the other day in The Observer:
But as everyone from the Wilson Committee to the Grylls study group has pointed out, if we really want to channel more of our savings to industry and investment, then we must open up a direct line between individuals and companies to counter the dominance of banks, building societies, national savings and the institutions.
This is the sort of instrument that would enable granny to lend without too much risk; and industry would gain from that source of individual borrowing.
The Government have, perhaps rather shamefacedly, recognised their obligation in this respect—they could hardly do otherwise, when they are extending index linking to so much of their stock. They have to do something to help industry, and recently we have seen announcements from the Government of some changes in the treatment of deep discount bonds, zero coupon bonds and other instruments of this kind.
The Guardian said the other day:
The Inland Revenue said that the discount would be treated as interest when the bond is redeemed. Analysts said, however, that the precise definitions the revenue had chosen made such bonds attractive to issue—but not to buy, undermining the objective of encouraging a new market in them. Mr. Peter Turner of James Capel called it a 'marginal improvement'".
The Government appear to be doing something. If we are to make an impact on small company financing, we shall need to take radical measures such as those that I have advocated in my new clause.
I hope that the Minister will respond by making plain to the House and to the financial markets what the Government have in mind—whether they intend merely to limit the improvements to the marginal considerations which have had no impact on small company financing, or whether they intend to make important changes whereby companies would have the same facilities as the Government have made available to themselves for borrowing.

Mr. Tim Renton: I am sure that the whole House is grateful to my hon. Friend the Member for Kensington (Sir B. Rhys Williams) for the ingenuity of the scheme which he has proposed. It was typical of him to bring a novel approach to the problems of corporate finance. His message, and that of the hon. Member for Gateshead, West (Mr. Horam), speaking for the Social Democrats, is a genuine one—that everyone should be worried about the inability of companies, both large and small, to raise money on long-term debt in this country in recent years. One sees from our financial press that in this country there have been no issues of long-term corporate debt in sterling for many years. In the Wall Street Journal, on the other hand, a whole page is devoted to new bond issues, new types of bonds, and so on. Clearly the ability of American companies to go on to the bond market and

raise money on a 20-year or 25-year term gives them a flexibility in financing which is non-existent in this country.
The alternatives contained in these new clauses highight the problem. However, I want to point out to my hon. Friend and to the hon. Member for Gateshead, West that, in my opinion, it is extremely important to keep the idea simple. If we had dynamised debentures—what a marvellous phrase that is, worthy of my hon. Friend—or if we had index-linked preference shares, I suspect that they would be far too complex and too novel for them to gain general acceptance. I hope therefore, that the Treasury and my hon. Friends on the Front Bench, in their important capacity as Treasury Ministers, will consider a basically more simple approach, such as the one outlined in the recommendations of the committee headed by my hon. Friend the Member for Surrey, North-West (Mr. Grylls), who has done so much work in recent months on the question of companies raising money on the long-term debt market.
I suggest that my hon. Friends on the Front Bench should look for a parallel in this country to what has been happening in the United States—the ability of companies here, both large and small, to raise money by issuing loan stock carrying no dividend whatsoever, at a deep discount, with redemption at a fixed price 20 or 25 years hence. The bond offered in the United States for this purpose would be a bond offered at a price of only 10, carrying no dividend, but redeemable at a price of 100 in 20 or 25 years' time.
The advantage to the investor is that he can work out the sums from his own point of view. He could do a discounted cash flow and work out for himself what the yield would be over the period of the stock. He would then be dependent on the tax treatment that he was afforded—whether it would be treated as a capital gain, or as income. The advantage to the issuer of the stock is that he has nothing to pay in the early years. As such loan stock is often required by the lender for substantial capital expenditure programmes, there is great advantage to the lender in not having to pay out a great deal in interest in the early years before the project comes to fruition. That means that he does not have to pay interest when he is spending on new capital assests and has not yet any income from the project. That is one of the great attractions to the lender of the deep discount bonds issued with no current dividend or yield.
I hope that such deep discount, no-yield bonds will be considered seriously by the Treasury. The key is the tax treatment. It is essential for the proper means to be found for at least a substantial part of the gain to be treated as capital gain in the hands of the individual recipient and as a taxable expense for corporation tax purposes in the hands of the lender. So far the Treasury has failed to build that bridge.
Dealing between intermediaries in how such deals should be treated is also a problem. The tax problems are not insuperable if the Treasury has a mind to conquer them. I am aware of the regular pessimism by the Treasury towards novel experimentation in fund raising. I remember the Treasury's deep concern about issuing Government index-linked gilts. The Government thought that every Arab in the world would pile into them because they would be the only index-linked, fully convertible currency stock in the world and would go to such a premium that they would be embarrassing. That did not happen. In the end


the Treasury accepted the arguments. After years of persuasion, index-links have come on to the market. If anything, they have been a damp squib.
I hope that my right hon. and hon. Friends on the Front Bench, who are imaginative and have good financial brains, will not allow the innate and native caution and pessimism of their civil servants to weigh too heavily against them. I hope that they will consider deep discount, nil-yield loan stocks by companies in a spirit of determination to make them work. In some such instrument lies another avenue for companies to raise money from the debt market. That avenue has been closed to them for too many years.

Mr. Richard Wainwright: New clause 41 is the third in a useful trinity of measures proposed by the hon. Member for Kensington (Sir B. Rhys Williams), my hon. Friend the Member for Gateshead, West (Mr. Horam) and myself. My new clause is intended to put it beyond doubt that capital repayments on money borrowed by a company shall not be regarded as distributions for corporation tax purposes. It is intended that companies will be able to issue deep discount bonds, or indexed bonds, sure in the knowledge that the cost will be allowable for corporation tax purposes.
One purpose of the trinity of measures is to give the private sector a fairer chance of borrowing necessary money against the extraordinary and growing privileges which the State takes to itself as borrower. Those privileges were increased this afternoon in the Government's new clause 2 which gives the Government the opportunity to be nationalised retail moneylenders to local government and other bodies.
12.15 am
I am glad that the hon. Member for Mid-Sussex (Mr. Renton) made it clear that we are not just discussing the rights and wrongs of taxing or not taxing borrowings in a domestic sense. We were correctly reminded that this is a great handicap to British companies in their world competition with American, German and other companies which have the advantage of a corporate bond market that enables them to borrow capital at reasonable cost and to set it against their tax liabilities.
Furthermore, my clause borrows from the bookkeeping arrangements that the Government have rightly adopted in respect of their own indexed bonds. As the House will know, the Government put into the public expenditure figures year by year the appropriate instalment of the capital repayment on indexed bonds that they have to make at the redemption date of the bonds. The House may be comforted to know that to that extent there is sound accountancy in that that accruing liability is entered into public expenditure year by year.

Sir William Clark: I think that the hon. Gentleman has his facts slightly wrong. The Government put the index linking cost in a table in the Red Book, but if one looks lower down that table one will see that that same figure is deducted. Therefore, it is not charged against the national accounts.

Mr. Wainwright: I should like to dispute that out of school with the hon. Gentleman. He is usually right in such matters, but we did have this out in the Treasury and Civil Service Select Committee and, rightly or wrongly, I was satisfied that this matter was accounted for.
Whether or not the Government do it, it is reasonable accountancy practice that the ultimate cost of paying back on a deep discounted or indexed security should be accounted for year by year. My clause provides that the properly calculated annual instalment shall also be an expense for corporation tax purposes.
There can be no doubt about the State's privilege. It is definitely crowding out borrowers from the private sector. This is the real crowding cut—not the crowding out that the Government always allege flows from high public expenditure. It is crowding out because of the privileges which the State takes to itself and which up to now it has, in tax terms, virtually refused to private borrowers.
On 17 March the Treasury and Civil Service Select Committee examined Treasury Inland Revenue officials and inquired why the Government had borrowing privileges. An under-secretary at the Inland Revenue said:
The Government has desired to sell gilts and has deliberately made them attractive at various times. I think the answer is probably as simple as that.
An under-secretary from the home finance group of the Treasury added:
And much of the cost you get back in lower yield".
Whereupon, very appositely, the hon. Member for Enfield, North (Mr. Eggar) commented:
There it has deliberately crowded out the private borrower.
To that the under-secretary from the Treasury replied:
It is certainly a privileged state.
I believe, as I hope do other hon. Members, that the scales are unfairly weighted against the private borrower to the great detriment of our industry, especially in export markets.
The trouble in this area arises on the tax front. It is not an offence to issue deep discounted securities or indexed securities as a private borrower, but the tax terms are prohibitive. None of the Government statements that have been made in recent weeks to try to show that the gate has been opened for this type of borrowing by the private sector amounts to a row of beans so long as the tax treatment makes them so unattractive. That was clearly brought out at the same Select Committee sitting, when the same under-secretary said:
We have always been—and I think would be—concerned about a situation in which the company could make a payment for the use of money which was deductible from its own corporation tax profits but was rot in any sense chargeable to lax in the hands of the recipient.
That fear is unjustified. However, if the borrower can set off the expenses of borrowing against corporation tax, it is argued that the lender will have to pay tax on the capital sums that he receives for the loan. That is wholly unnecessary and unjustified and is supported only by mere superstition. It is sheer superstition to suppose that an expense against corporation tax in the hands of a borrower will, as a matter of principle, be taxable for income tax in the hands of the recipient. There is nothing to justify that. We are dealing with two different taxes and sets of citizens.
The cost of borrowing money to the borrowing company has nothing to do with whether the amount is taxable in the lender's hands. The idea that a particular sum must somehow, in someone's hands, give rise to a tax liability is nonsense. However, to cover up the whole thing and to make it seem respectable, it has been dignified by the word "symmetry". The superstition that there is a symmetry in tax to which we must all pay obeisance has crept into our tax language. That is a false god if ever there was one. No principle can justify the argument that,


because a sum is an expense in the hands of one group of people, it must be taxable when it is in another's hands. Those who deal with tax know that some sums are taxed four or five times over in different hands while other sums escape tax altogether.
I do not wish to detain the House with the innumerable examples that come to mind, but the obvious example is the golden handshake. A golden handshake is a proper expense to be set against corporation tax by the company that gives the handshake. As we all know, if the golden handshake is worked out properly, it is not taxable in the hands of the recipient. That is just one example of the way in which the same sum is allowed as an expense for corporation tax but is completely free of tax in the hands of the recipient.
I ask only that similar rules should apply. As has been said, if we are to be more competitive, it is vital that the private sector should be able to borrow in the sophisticated ways that the State is exploiting as much as possible. I shall be very disappointed if the Government continue to maintain that the State must have privileges that are to be wholly denied to the private entrepreneur.

Mr. Beaumont-Dark: I shall be brief because otherwise I should only repeat what has been said by other hon. Members. Deep discount bonds have a real part to play in industry's financing. When the Government gave themselves as borrowers the privilege of having indexed bonds it was only fair to give the industry the same chance.
As the hon. Member for Colne Valley (Mr. Wainwright) said, the word that sums up what is wrong with the Revenue's view is "symmetry". I hope that we can get away from that word. When the indexation of capital gains tax was mentioned in the Budget speech it was greeted with much applause by everybody, because it showed an imaginative way of doing things. Within 48 hours, when one saw the Bill, one realised that, although the Government were full of good and splendid intentions, the Revenue and the draftsmen had soon turned that good idea into an administrative mish-mash and almost a nightmare. There have been few changes to make it anything else.
When the next good idea arrived of deep discount bonds for industry, which many of us had been trying to achieve for years but which the Revenue said was quite impossible and would impoverish the State, the Minister made a statement that many of us welcomed with open arms. Within 24 hours the Revenue and its draftsmen had turned what looked like another good idea into a lead balloon.
I hope that it will be some months before tha legislation is drafted so that this good idea can be returned to the House, thoroughly discussed and turned into sensible legislation. When one read about paying tax on dividends before they were received, one knew that, although the political masters thought that it was a good idea, the Revenue and its draftsmen wanted no part of it.
I hope that we shall learn from the indexation of capital gains tax that good ideas should be allowed to flourish and succeed. Indexing, which was not supposed to be able to work, can work. Discount bonds do not mean that people are avoiding taxation. The idea that stalks the Revenue's corridors is that somebody may get away with something. We should be interested in making industry prosper and bringing forward ideas that will encourage industry to take

the enormous risks involved in borrowing money. The way to do that is to open up the long-term market to industry away from bank debt. We all know how painfully short-term bank debt can be with long-term ideas.
I hope that the Chancellor's excellent idea will be allowed to flourish, that symmetry will not be allowed to rule, and that a good idea will become a good Bill. If it becomes a good Bill, industry will borrow and prosper more rapidly.

Mr. Michael Grylls: I want to comment briefly on the proposal initiated by my hon. Friend the Member for Kensington (Sir B. Rhys Williams). We are all sometimes presumptuous and think that important debates should be held in prime viewing time and not in the middle of the night. It is ironic that when the House talks about long-term money for industry it is in the middle of the night. It is an important problem and it may not receive the attention that it should. I welcome the interest that the Government have taken. I hope that the tax treatment will be sorted out. As my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) said, it is crucial for industry.
It is odd that Japan is the only country that has an investment-led recovery. Yet it is also the one country that provides long-term credits on a low pay-back basis. As the Committee tried to show, there is a lesson to be learnt from that. If it has wider support, it will be very good for industry.
12.30 am
Measures of this kind are desperately needed because, as my hon. Friend the Member for Mid-Sussex (Mr. Renton) rightly said, projects tend to have a negative cash flow in the early stages so that it is difficult to pay high interest rates. That is why there is need for a deep discount or the American accrual system in which in the early period one is deemed to have paid the full interest when one has perhaps paid only half and one then catches up at the end of the load period.
It would be eminently sensible to meet the realities of industry in this way. Most projects will involve research and development and the difficulties of getting anything new going. Funding of this type is therefore needed and this may be one of the gaps that British industry has suffered. Certainly there is ample evidence to suggest that.
It has been valuable to draw attention to this matter, albeit at half-past midnight, and I hope that the Government will take this short but important debate as encouragement for the modest steps that they have taken and that they will take further steps in next year's Finance Bill. Indeed, they could do something before then if they were so minded and thus enable these markets to get going and the bond market to help industry once again. This has been one of our most important debates. I hope that the Government will be encouraged by the unanimity throughout the House and will move ahead a little further.

Mr. Ridley: I, too, welcome the three constructive suggestions that have been put forward for reviving the long-term capital market. It has been a concern of many, not least my hon. Friend the Member for Surrey, North-West (Mr. Grylls), who has consistently drawn attention to the need for this. He has put forward many constructive ideas and is still working on the problem. I pay tribute not just to what he will achieve but to what he has already achieved.
We have put forward some very attractive propositions on this subject in recent weeks, although, listening to the debate, one would have thought that the House had not realised this. When I deal with the new clauses in detail, I shall show the extent to which the points raised have already been met. Before doing that, however, I should say something about the wider context.
Earlier today we had a debate on monetary implications and whether there was a need for overfunding. One way in which the need for overfunding can be reduced must be to take long-term industrial borrowing away from the banks and to take it straight from the savers, that is, the investors. If there is a crowding-out phenomenon, as the hon. Member for Come Valley (Mr. Wainwright) constantly alleges, the way to deal with it is to get the long-term capital markets going—although it is scarcely fair to accuse the Government of crowding out when they have to provide the funds for the banks to supply industry. We simply seek to cut out the two intermediaries—the Government and the banks.
We have considered zero coupon bonds, deep discount bonds, indexed bonds and any other type of instrument that the City or the borrowers care to think up, including suggestions such as value-added stocks which my hon. Friend the Member for Kensington (Sir B. Rhys Williams) especially recommends. Such stocks can take a whole variety of forms.
The first principle is that it should be left to the ingenuity and requirements of the borrowers and the lenders to design between them lending instruments that suit their purpose to the best. Of course the tax treatment is relevant, but for every different combination of borrower and lender, or different type of instrument and the relevant type of tax treatment, one will probably come to a different answer. Therefore, what we have done—I believe this is the right thing to do—is to provide for every possible route and to provide tax treatment in three main ways so that borrowers and lenders can choose that which suits them best.
First, the annual increase, whether it is indexed, deep discount or zero, can be treated as rolled-up interest and paid at maturity of the bond. That is the case at present and there is nothing to stop it happening. To those who throw symmetry at Treasury Ministers, I say that if an industrial borrower borrows from an exempt fund or an overseas lender he will obtain corporation tax relief on the repayment increment and the lender will be exempt from tax. In that way, there will be no tax payable anywhere. Indeed, the immoral principal of the Liberal Party of asymmetry has even been conceded in that case, although the hon. Member for Come Valley never realised it.
Secondly, as an additional, and in some cases a preferable, route to that, we were hoping to be able to legislate—we would need to legislate—for the accrual system which is practised in America. The system is that every year the interest is deemed to have been paid, although it has not been paid, and that is treated as a tax loss in the hands of the borrower and income in the hands of the lender. So, again with an exempt fund that does not pay tax, there is no tax to pay by the lender whereas the borrower can offset corporation tax on behalf of interest that he has not even paid. Where is the symmetry there? That is a real tax advantage, but, not content with that, we have suggested that there is a third possible route.
The gain on any of these bonds could be treated as a capital gain, in which case it would be a capital gain in the

hands of the lender, but after indexation probably very little tax would be payable In the hands of the borrower it would not be offsetable because a capital loss cannot be offset against profits for corporation tax.
Those are the routes that we set out, but I must put forward one or two caveats because legislation is not yet before the House. First, we hope to legislate the accruals route. It is complex and there will be difficulties. We cannot promise when or exactly what form the legislation will take, but we will report again to the House as soon as we are able to do so.
Secondly, there will be certain anti-avoidance provisions for early sale of rolled-up interest bonds by private individuals before maturity. Otherwise, a tax avoidance device would be opened that the House would not tolerate for one minute. I hope that the House will realise that these are golden opportunities.
I now wish to consider the three new clauses. The first, tabled by my hon. Friend the Member for Kensington, would treat both the interest and the capital uplift according to the value added by the company in the way that he described. Those bonds, which could be issued now, could either be treated by agreement between the lenders and the borrowers as rolled-up interest bonds or they could be treated as capital uplift.
Clause 55 deals with the point which my hon. Friend seemed to be very concerned with, that the interest could be treated as interest and could be offset against corporation tax. Dynamised though it may be, it is still offsettable against corporation tax under clause 55. That is because clause 55 provides that whether it is offsettable depends in whole or in part on the results of the company's performance. As my hon. Friend's suggestion is dependent at least in part on the results of the company's performance, it would be treated as interest and it could be rolled up and deducted for the future. If we legislated the accruals route, it could be deemed to be paid and charged annually in the way that I described. Although clause 55 was designed as an anti-avoidance provision—and it will not be too popular with some companies—it at least meets my hon. Friend's suggestion.
Equally, my hon. Friend could have those bonds treated as capital bonds, again by agreement of lenders and borrowers, and the capital route treatment would apply. To those who keep saying that we have favoured Government stock, surely that is the answer. Identical bonds to index-linked bonds can be issued by companies, and the only difference—I admit that this is a slight difference—is that for the first year the indexation uplift would not be allowed, whereas with indexed gilts it is. There is no other difference in treatment. My hon. Friend will find that there is nothing to stop the sort of stock he has in mind being issued straight away and that the parties can choose the tax treatment which they find most suitable.

Mr. Renton: may have misunderstood my hon. Friend, but surely there is a profound difference. In the case of index-linked Government gilts, after a year no capital gains tax is payable In the case of the type of index-linked corporation stock that we have been discussing, probably the minimal tax to be paid will be capital gains tax on the uplift. There is a profound difference.

Mr. Ridley: If the bond is index-linked, it will not rise by more than the index. Therefore, if it is treated as a


capital bond it is impossible for it to rise more than the index and there could not be a taxable gain. The only difference is that the first year of inflation is not allowable under the 12-month waiting rule.
I come to the new clause tabled by the hon. Member for Gateshead, West (Mr. Horam). Unquoted companies can, under clause 48, buy back index-linked preference shares in exactly the way that he wants. They would be treated as a capital gain on redemption rather than at distribution under clause 48 and schedule 9. But there are two conditions in the main which he has left out of his clause but which we have included in clause 48. There would need to be a five-year holding period, to outwit blatant avoiders and evaders who used it simply to milk a company, which would be possible, and also we have to guard against the company paying a minimum dividend under clause 48(1) (b) (i). There are those two exceptions, but if the borrowers and the lenders choose the right investment the tax treatment that my hon. Friend seeks is available. There is thus no need for further legislation and there is no need for the clause to be pressed to a Division.
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The preferred treatment of the hon. Member for Colne Valley for deep discount and indexed bonds is that the uplift in the capital value should be allowable against corporation tax but that the interest should be deductible even if no interest is paid. The hon. Gentleman, for example, can choose whether to treat the bond as a rolled-up interest bond or as a capital bond so long as both parties make clear what they intend it to be from the start. In that instance the interest would be deductible and that would be fine. There would be a need for an anti-avoidance provision to stop sales by private individuals before maturity.
On the annual deductibility of interest, the hon. Gentleman has borrowed half a leg of the American accrual system. If we were to legislate on that basis next year, we would be able to provide him with what he wants. The hon. Gentleman says that the interest which has not been paid should be deemed to have been paid in the hands of the borrower and that he should be able to deduct it from his corporation tax. However, the clause does not provide that the interest which has not been paid should be deemed to have been received by the lender and that he should have to pay tax on it. That is a serious omission. It does not destroy the purpose of it because, as I have said, exempt funds and overseas borrowers are not liable to tax in any event.
I do not think that it would be possible to work out a system of taxation on an accrual basis for indexed stock because it would not be possible to know how much should be deemed to be paid each year without looking into the crystal ball and fixing the RPI for 10 years hence, and that cannot be done. That route would be difficult to provide for in legislation.

Mr. Richard Wainwright: If the difficulties are as great as the hon. Gentleman claims, how can the Government manage to enter in the Red Book year by year a carefully computed sum by reference to inflation over the past year in respect of their obligation to repay indexed bonds? The Government do that satisfactorily in the Red Book. Why should a private company not be capable of doing the same thing and being allowed to do it?

Mr. Ridley: There would have to be a balancing charge on the redemption of the stock. It becomes too complicated, which is what the hon. Gentleman would discover if he studied the matter. If the annual deemed interest payments are found to be greater or smaller than they should have been when the index is finally known, there has to be a correction at the end of the period and the arithmetic involved in that, as well as the complication, means that the game is not worth the candle, especially as there are so many other ways in which the stocks can be marketed.
We have provided three routes and we have clarified tax treatment with the one exception. We hope that legislation for the third route will be available soon. It may be available next year subject to our studies and review. If hon. Members are to talk all this down and are not prepared to recognise the advantages of what the Government have done, they are putting off British companies from going to the market to borrow these stocks. It will be no surprise to the House to know that, since a fortnight ago, when we made the announcement, all those in the queue seeking to borrow these stocks have been foreign companies. Hon. Members and the press are determined to say that the Treasury is stingy, that Ministers do not understand and that the arrangements that have been made are awful—all the things that my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) has said—but all that they have done is to put off British companies. My hon. Friend has not put off the American companies as they are used to such stocks. I recommend to hon. Members that, although we have met the burden of most of the new clauses, they might try to sell what we have done rather than talking it down.

Sir Brandon Rhys Williams: I thank my hon. Friend the Minister for what he said, which will have to be studied extremely carefully and with the advice of experts. The House will agree that the meaning of the new provisions does not immediately leap to the mind like a childrens's rhyme. However, my hon. Friend is clearly bent on solving the problem and has gone a long way towards doing so. I do not want to ask the House to support the new clause because we have gained a great deal tonight. We must study carefully my hon. Friend's remarks.
I thank my hon. Friends who have supported me in the debate, particularly my hon. Friend the Member for Surrey, North-West (Mr. Grylls), because he has pioneered this subject and has helped to light up the scene by the activities of his Committee. It is helpful, and many people will rejoice, that we have said goodbye to symmetry. Much has been said on that subject which will be remembered and used again.
However, as my hon. Friend the Minister said in his closing remarks, the problem remains that British companies have not leapt to take up the opportunities that he believes have been opened up. Perhaps that is because this is indeed such a minefield, and the provisions that the Government have introduced are so complex. I hope that the debate has served a useful purpose. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 16

INTEREST RELIEF FOR THOSE IN JOB-RELATED LIVING ACCOMMODATION

'In Part II of Schedule 1 to the Finance Act 1974 (conditions of allowance of interest relief on loans for purchase or improvement of land), after sub-paragraph (7) of paragraph 4(A) (inserted by section 36 of the Finance Act 1977) there shall be inserted—
(8) For the purposes of this paragraph living accommodation shall be treated as job-related for a person carrying on a trade of victualler as lessee or tenant of licensed premises under a lease or tenancy who is required by the terms of that lease or tenancy to reside in the accommodation being accommodation forming part of or attached to the licensed premises provided that only interest paid on or after 5th April 1982 is eligible for relief by virtue of this sub-paragraph.
(9) For the purposes of sub-paragraph (8) above 'licensed premises' has the same meaning as in section 200(1) of the Licensing Act 1964.
(10) In subsection (8) section 101 of the Capital Gains Tax Act 1979 (relief on disposal of private residence) sub-paragraph (8) above shall not have effect in relation to any time before 5th April 1982.".'.—[Sir William Clark.]

Brought up, and read the First time.

Sir William Clark: I beg to move, That the clause be read a Second time.
This debate is a little more mundane. It is on interest relief for those in job-related living accommodation. The House will recollect that, if one buys a house on a mortgage, mortgage interest relief is given. A person, because of his occupation, may have to live in the premises but at the same time he is probably saving up to buy a house for his retirement. If he is in job-related premises—for example if he is the manager of a public house, or a clergyman—as he pays his tax under schedule E he is entitled to get not only capital gains tax relief, which is available to everyone else, on the house that he is buying for his retirement but mortgage interest relief on the mortgage that he has taken out in order to buy that house.
There is an anomaly and an injustice. In the licensing trade—I assure you, Mr. Deputy Speaker, that I have no vested interest in licensed premises, apart from being a customer occasionally—sometimes licensed victuallers who run public houses are tied tenants. As tied tenants they come under schedule D for tax purposes. Therefore, my understanding is—and I have counsel's opinion to back me up—that they are not entitled to mortgage interest relief for the house that they are buying for their retirement. It is an anomaly and an injustice that those who, to all intents and purposes, are in precisely the same position as the manager of a public house do not get the same treatment.
It is the philosophy of this Conservative Government, whom I support, that we do all we can to help the small business man. Among the small business men are the tied tenants of public houses. I understand that in Scotland, for some obscure reason which escapes me at the moment, some of the clergy are deemed to be self-employed persons rather than schedule E persons. As self-employed persons they are, of course, assessed for tax purposes under schedule D. They are, I understand, in precisely the same awkward position as the tied tenant of a public house.
There was a tax case on the question, Frost v. Feltham, in 1980. I am assured by counsel that it does not apply to all tied tenants. Consequently, tied tenants cannot get the relief. If the Minister can assure me that any tied tenant

who is assessed under schedule D will be entitled to the same mortgage interest relief and the same capital gains tax relief as any other schedule E taxpayer, I shall be content. I look forward to hearing what he has to say.

Mr. Ridley: I am grateful to my hon. Friend the Member for Croydon, South (Sir W. Clark) for raising this point. I find it very difficult to determine what should or should not be done in regard to it. One has sympathy with the persons concerned, but it is always difficult to legislate for one group. As soon as one thinks of a particular group, one thinks of another. My hon. Friend thought of the Scottish clergy. I had not realised that they were involved and I shall look into the matter. My hon. Friend will know that farm tenants, who are taxed under schedule D, also suffer from the disability that they fall outside the "only or main residence" test.
The rule was breached in 1977 for employees living in what was called job-related accommodation, if it was necessarily provided for the performance of their duties, if it was customary to provide such accommodation, or if it was provided because of a special threat to their security. They were then allowed to claim mortgage interest relief on a home other than where they lived.
It has never been felt that objective indicators could be found for the self-employed similar to the ones that I have mentioned for the employed. Once one draws the line at licensed victuallers, then at Scottish clergy and then at farm tenants, there are ever more categories of other people who will be the next to press for the line to be moved.
As my hon. Friend says, there has been a High Court case, Frost v. Feltham, in which Mr. Justice Nourse gave guidance as to the conditions under which mortgage interest relief should be allowed for a licensed victualler who was a tenant and wished to finance the building of a house away from the job-related accommodation in which he lived. The conditions concerned the type and length of his security of tenure, whether he had been dealing in property or it was his first purchase, whether the house was fully furnished, whether it was a proper home or just a pied-à-terre, the frequency and length of visits that he paid to it, and its distance away from the public house where he worked.
That is a piece of judge-made case law and we shall wish to see its effect. Many licensed tenants will qualify under the new conditions. I have frequently pressed the National Association of Licensed Victuallers to describe the position of its members as a result of the case, but so far I have had no reply. Although I have been watching the matter with a sympathetic and friendly eye, I have not been helped by those whose job it should be to press the reform upon us.
I doubt whether there is a problem with this group, but my right hon and learned Friend the Chancellor and I are studying the problem carefully. I am grateful to my hon. Friend for having drawn attention to it now. We shall not lose sight of it for the future.

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Sir William Clark: I am grateful to my hon. Friend for that reply. If a tenant farmer must live in a farm because of his terms of employment, although he is taxed under schedule D, why should he not enjoy the same privileges as an ordinary employee? If he is the manager of a farm, he should be treated in exactly the same way as the


manager of a pub. I shall certainly inquire whether the National Association of Licensed Victuallers knows of any cases, but this is a question of principle. Because of a quirk in that a person is taxed under schedule D instead of schedule E, for whatever reason, it is unfair not to give him the same tax advantages as an ordinary employee. As my hon. Friend has given an undertaking to keep the matter under review, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 20

BUSINESS START-UP SCHEME—RELAXATION OF PROVISIONS DEALING WITH TAX REPAYMENT SUPPLEMENTS

'Section 52(8) of the Finance Act 1981 shall cease to have effect.'.—[Mr. Loveridge.]

Brought up, and read the First time.

Mr. John Loveridge: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to take the following:

New clause 21—Business start-up scheme—relief if share sold at less than full value:
'In Finance Act 1981, section 57(1)(a), delete the words after "arms length,". and substitute the following: "the amount of the relief to which he is entitled in respect of those shares shall be reduced by their market value at the date of disposal or, if greater, the amount or value of the consideration which he receives for them; and".'.

New clause 22—Business start-up scheme—relaxation of provisions relating to disclosure of information:

'(1) In the Finance Act 1981, leave out section 63(2) and substitute the following—
(2) Where an event occurs by reason of which any relief in respect of any shares in a company to be withdrawn by virtue of section 53(7), 55, 56, 58 or 59 above the company shall within sixty days of the event give notice in writing to the Inspector containing particulars of the event.

(2) In section 63(6) of that Act, delete the words "and any person controlling the company.".'.

New clause 23—Business start-up scheme—extension or relief to employees and directors investing in companies for which they work:

'(1) After section 54(2)(a) of the Finance Act 1981 there shall be inserted "other than an employee owning 5 per cent. or less of the issued ordinary share capital of both companies",
(2) After section 54(2)(c) of the Finance Act 1981 there shall be inserted "other than a director owning 5 per cent. or less of the issued ordinary share capital of both companies."
(3) In section 54(3) of the Finance Act 1981 after first "director" in line 2 insert "Holding more than 5 per cent. of the issued ordinary share capital of a company."

Section 58(2) Finance Act 1981—insert after 'Section' the words 'and subject to subsection (10) below,'.

Insert new subsection:
(10) For the purposes of subsection (2) and section 59(7), any emoluments, expenses, benefit or facility provided by reason of an individual's employment with the remuneration for the performance of the duties involved.".'.

New clause 24—Business start-up scheme—extension of the definition of a qualifying individual:

'(1) In section 53(3) of the Finance Act 1981, delete "50" and substitute "80".
(2) In section 53(7) of the Finance Act 1981, delete "50" and substitute "80" (in two places).

(3) In section 54(4) of the Finance Act 1981, delete "more than 30 per cent." and substitute "more than 40 per cent.".
(4) In section 54(6) of the Finance Act 1981, delete "more than 30 per cent." and substitute "more than 40 per cent.".

New clause 27—Business start-up scheme—acceleration of receipt of relief:

'(1) For section 52(3) of the Finance Act 1981 there shall be substituted the following—
(3) the relief shall be given on a claim subject to the following conditions—

(a) The company shall carry on the new trade for a period of twelve months; and
(b) if the company was not carrying on the trade at the time when the shares are issued, the trade is to commence within twelve months after that time or within such further period (not exceeding twelve months) as the Board may allow."

(2) In section 52(4) of the Finance Act 1981 the following words shall cease to have effect "(or, where the period mentioned in subsection 3(a) above ends later, after the end of that period) if the conditions for relief are satisfied."

(3) For section 61(1) of the Finance Act 1981 there shall be substituted the following—
(1) a claim for relief in respect of shares issued by a company in any year of assessment shall be made not earlier than the end of that year and not later than two years after the end of that year.

(4) After section 62(6)(d) of the Finance Act 1981 there shall be inserted after "59(1)" the following "or in the case of the conditions specified in section 52(3) not being met.".

(5) In section 63(2) of the Finance Act 1981 there shall be inserted before "53(7)" the numbers "52(3),".'.

Mr. Loveridge: I acknowledge the improvements made by the Government earlier in the debate. They have extended the scheme so that the subsidiary companies of qualifying companies can obtain relief. That shows the recognition of the need to expand the small business sector and of the relationship between the growth of the economy and the strength of the small business sector. It is no coincidence that growth in Japan has been so much greater than in Britain, because Japan has twice as many small firms for each 1,000 people. It is especially worth remembering that two-thirds of manufacturing jobs in Japan are in small firms, while in Britain only 29 per cent. of such jobs are in small firms.
The purpose of the business start-up scheme is to give relief against income tax to those who invest in trading companies. The extension to their subsidiaries is a most welcome encouragement that will help to bring private investors to a less disadvantageous position compared with institutional investors, who now provide the majority of funds for investment. We often hear of the need for more investment in industry. It has been shrinking as a proportion of gross domestic product for many years and the small business start-up scheme and the extension announced today are welcome.
However, so far there has not been as much take-up of the scheme as we would wish. The suggestions put forward in the new clauses in the names of myself, my hon. Friends the Members for Luton, East (Mr. Bright), Bristol, North-West (Mr. Colvin), Devon, North (Mr. Speller) and Hertfordshire, South-West (Mr. Page) would help to make those schemes more effective. The business start-up scheme has had to be hedged in by restrictions to prevent its use as an avoidance device. This has resulted in the complex nature of the scheme. Only those with first-class professional advice can really understand it. Such advice is costly and the complexity must put off investors, many of whom would like to be able to understand for themselves what they may be letting themselves in for in making investments.
Our proposals are put forward to enable the business start-up scheme to work as intended. During the passage of last year's Finance Bill, the Government stated that the scheme would start modestly and might broaden in scope. This has happened to some degree. I hope that the Government will accept the new clauses designed to improve the scheme and to make it more effective. I propose to concentrate on areas where the scheme could be made more attractive without undermining the anti-avoidance provisions which the Government must ensure are effective.
I turn first to new clause 20. Since relief cannot at present be given until after the year of assessment for the taxpayer, the relief normally comes as a repayment of tax. If this repayment has to wait a year, it seems only just that interest should be paid on the money withheld. The new clause would enable this interest to be paid.
Next, I deal with new clause 21. If shares are bought under the scheme and they have to be sold at a loss or for less then full value, the restriction of relief should surely relate to the loss. At present, all relief is apparently lost, even though equity would suggest that only part of the relief should be restricted.
Last year, it was agreed to increase the time limit from 30 to 60 days for giving information to an inspector of any event that would cause relief to be withdrawn. New clause 22 merely ties the duty to inform the inspector to those to whom such an event relates. At present, any other person is deemed to have knowledge, even if he has not, and is required to give information not related to himself of which he may not be aware. This is bad law and should be corrected.
New clause 23 aims at encouraging employees and directors to commit their own funds to the enterprise in which they work. At present, they cannot do this and receive the relief under the scheme. But they are surely the people who should be encouraged to make a success of the firm by taking a stake in its equity. The new clause is itself restrictive. It limits relief to those with less than 5 per cent. of the issued share capital of the firm concerned. It is hoped that the Government will wish to encourage these employees to play a part.
To prevent any abuse of the suggested relief, the proposals before the House include an anti-avoidance measure that would allow the Inland Revenue to refuse relief where it is shown that anyone is drawing too much pay for the work he does. The relief could be restricted in such a case.
I refer next to new clause 24. As the scheme now works, no one person and his associates can invest in more than 30 per cent. of the issued share capital of the relevant company and still get the relief. The total invested under the scheme by any number of persons cannot cover more than 50 per cent. of the issued share capital. The effect of this is that if the company grows, those investors who have already invested in the company, and who understand it, will not be available to provide further capital to cover cash flow needs as the firm grows. It seems a great pity, since the choice of investors must necessarily be limited in any firm, that a firm cannot look for further money from the same source that originally invested. Therefore, our proposals would increase these figures from 30 per cent. to 40 per cent for individual investors and their associates, and from 50 per cent. to 80 per cent. for the total.
New clause 27 deals with delays in getting tax relief, which might amount to as much as three years. For a

company to qualify it must start trading in a period following the issue of the shares. It will often be the case that an investor has to wait 18 months or two years for the tax benefit to be repaid. It was always hoped that a number of professional people would become investors under the scheme. Such people, even if on high incomes, often have high immediate commitments to meet, such as school fees for children or mortgage repayments.
Unless ample cash savings have been made by them, they may have to borrow to make such investment, but the interest rates that might not be deductible for tax purposes would be so high that if they have to wait two years for the repayment of the tax under the scheme, it might discourage them from doing so because of the severe cash flow limitations on their families. These are just the sort of people that we want most to encourage to invest—professional people who can take an interest in the small firms in which they invest and help them through their knowledge and experience. New clause 27 would enable this to be done.
I have set out the proposed changes related to each of the new clauses as briefly as possible to save the time of the House tonight. My colleagues and I hope that the Government will respond favourably to our suggestions, as they have done to other suggestions in the past. We are grateful for what they have done for small businesses, but we feel that to make this business start-up scheme effective, the provisions that we are advocating need to be implemented. We particularly need new businesses that will grow fast to provide new jobs in the kingdom today. If the Government will accept the new clauses it will help to provided such jobs.

Mr. Graham Bright: The whole concept of the business start-up scheme puts the United Kingdom far ahead of any of the countries mentioned by my hon. Friend the Member for Upminster (Mr. Loveridge). However, the scheme as set out now is not working as it should. It is far too complicated and it is far too restrictive. The scheme is a classic case of the Inland Revenue over-reacting and using a sledgehammer to crack the walnut of anyone making a penny more than he should.
We are asking people to put down a great deal of money and to risk a great deal. It is all aimed at increasing the number of new companies, and creating new real jobs. That is a worthwhile risk if we can create more companies and jobs. The Revenue should enter into the spirit of the scheme, because the stakes are so important. For that reason, the Revenue should take risks. After all, if there are too many loopholes, there is no reason why the Government should not come back to the matter. What we do not want is what has happened so far in the scheme, and that is an overkill. The overkill to stop misuse of the scheme has almost killed the scheme itself.
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We were told that the scheme would develop and broaden. The idea was to start cautiously. We were also told that it was important to get the scheme off the ground. We have tabled these new clauses because we want the scheme to get off the ground, which has not happened so far.
There needs to be greater certainty of entitlement to relief under the scheme. There should be less emphasis on the possibility of withdrawing relief, due to factors which


are often entirely outside the control of the investor. The emphasis should be changed, so that people know exactly where they stand.
As my hon. Friend said, the scheme is not easy to understand. Accountants are wary of it, because they do not understand it. One often needs to call in top professional advice. That is not cheap, and often it is not easy to find. So the potential investor often finds the whole idea offputting.
We, as a Parliament, should take account of the commercial realities of start-ups, and those commercial realities are not necessarily the same for people in the Inland Revenue, who are concerned about tax dodgers. They do not want a charter for tax dodgers; neither do I. I want a realistic scheme that will draw in new money with which to start new companies. There is a danger at present that an investor could go ahead without getting advice. In such cases, he could lose his entitlements. There need only be a few cases like that for people to be entirely put off the scheme.
In the new clauses we have tried to spell out three areas for urgent amendment. First, there is the extension of the definition of qualifying individuals. We recommend that the 50 per cent. limit that was originally imposed should be enlarged. New companies are always cash hungry, and people normally underestimate the money that they need to get a business under way. The outside investor who initially puts in money sometimes has to put in more money merely to protect his investment, because otherwise the whole project could go to the wall. I therefore hope that the 50 per cent. limit will be raised. In our view, 80 per cent. would be much more realistic. With an 80 per cent. stake, we could get away from the minority emphasis, which tends to put people off, because they do not want to be forced into a minority. So extra cash needs to be available. Entrepreneurs often have extremely good ideas but do not have the money to get them into practice. We are trying to introduce the cash so that good ideas can get off the ground.
Next, we need to extend the relief to employees and working directors who invest in companies. I am in favour of wider ownership of wealth for employees. That is a valuable source of cash for a company, and it encourages commitment, which is essential at the start of a new company. It has been said that there could be a loophole here and that people could get round corporation tax. The Inland Revenue has an opportunity to disregard remuneration which exceeds reasonable levels. It is right that it should have such power because limiting the amount of investment to £1,000 a year, or 5 per cent. of the share capital, provides protection. It is worth the risk to increase industrial democracy and to give opportunity to people working for a firm to have an investment in it.
Relief should have an immediate effect. My hon. Friend the Member for Upminster said that investors often have to wait up to three years before they receive their money. That is probably extreme and 18 months is more normal. That imposes enormous cash flow disadvantages because the whole amount has to be put down at once.
We should like senior executives to invest in the start-up scheme. They can afford the money, after relief, but with all their commitments they cannot afford the total. They could consider bridging loans, but that might make the scheme not worth while. Many small businesses fail

because of lack of experience. The executive can give his advice and skill to get a company off the ground. We must speed up the scheme so that the executive can put his money in without cash flow problems. The executive is needed to give a company a better start.
I have rushed my argument because of the time. The business start-up scheme is without doubt excellent, but it must be unshackled and given a genuine chance to work. The new clause aims to give the scheme the "get up and go" that it needs.

Mr. Richard Page: The selection of new clauses enables us to discuss the suggestions for the start-up scheme in a group instead of dealing with each in turn.
My hon. Friend the Member for Upminster (Mr. Loveridge) described the details involved kindly. I wish that I could support strongly the way in which the scheme operates, but it is failing. One of the reasons for my disappointment is the contrast between what is happening and the statement by my right hon. and learned Friend the Chancellor of the Exchequer in March last year. When talking about helping the small business community and the start-up scheme he said:
One of the biggest problems faced by people thinking of starting their own business is the difficulty of attracting sufficient risk capital to finance it during its critical early years … The individual private investor has for many years had little encouragement to help fill that gap in the capital market. I propose to change that.
My right hon. and learned Friend's final words on the start-up scheme were:
This business start-up scheme will be unique in not only this country but among our main trading competitors. It will be a striking new incentive to channel investment into small businesses."—[Official Report, 10 March 1981; Vol. 1000, c. 781.]
I only wish that that had been the case. I can remember how disappointed I felt when the details emerged out of the machinery of the Treasury. It would not be unfair to say that the scheme was an accountant's nightmare. I know that in Committee my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) accepted many of our amendments and produced many of his own to try to improve the scheme. However, despite all his help—the scheme was much improved—it is unattractive to the accountancy profession. We have a double task, not only to try to improve the scheme, but also to encourage the accountancy profession to put it forward to the investors.
I am sure that my hon. Friend the Member for Upminster will accept that anybody dealing with such sums of money usually has professional advice. If that advice is not to go ahead, it will be an extremely foolish investor who does so. Unless my hon. Friend has information to the contrary, I must say, regretfully, that I know of few people who have taken up this start-up scheme. It has been a proverbial damp squib. It has only three years to run from its commencement. One year has already gone and I see nothing, even in the amendments that have come forward in the Finance Bill and on the Floor of the House today, that will make that scheme more encouraging to the investor.
I shall not go through all the new clauses in detail, but I should like to make a few comments, some of which follow on those of my hon. Friend the Member for Luton, East (Mr. Bright). It seems nonsense that an employee


cannot participate in the start-up scheme. He can put his money into a firm operating down the road, but he cannot put his money into his own company.
One of the strengths of small businesses is the fact that they have better industrial relations and feeling of participation. What better way to cement relations than by having a stake in the business in which one is employed? Surely 5 per cent. will not bring the whole Treasury structure crashing about our ears. I quite understand why one does not want an individual investor to have more than 30 per cent. relief, but I see no reason why the present 50 per cent. limit cannot be raised to 80 per cent., as we have suggested.
One sees certain periods in the formative stages of a small business when it needs extra finance. Who better to put it in than the initial backers? I see no problem at all in allowing it to go to 80 per cent., again without endangering the scheme and bringing about any form of tax avoidance.
I should be further grateful if my hon. Friend would tell me whether new clause 43 covers the question of management buy-outs. As I understood it, there is a requirement in the start-up scheme that in the two years prior to the issue of shares on which relief is claimed a company must not buy a subsidiary of another company and make up subsidiaries itself unless the subsidiaries commence trading after the company itself. In these times of management buy-outs, this must surely be a source of new companies and should be encouraged. I should be grateful if I could be told whether new clause 43 covers that point.
We do not want to encourage any form of tax evasion or avoidance by undermining the anti-avoidance restrictions. However, as the scheme is virtually dead, we must attempt to revitalise it. Surely the way in which the sales of shares are treated must be a valuable step in that direction.
1.30 am
It would be more equitable to restrict relief to the loss suffered, with suitable safeguards against avoidance, than to withdraw relief completely. Alternatively, the five-year period in which investment is made could be reduced to three years. In addition, it might be possible to ensure that relief is progressively retained depending on the length of time that the investor holds his shares. If he retains his shares until the fourth year, his relief is almost completely retained. If he cashes in the shares after three years he will lose a little more, but he will still receive a major chunk of the tax relief that originally encouraged him into the scheme. We must accept that five years is a long time and that circumstances change.
Finally, there is a strong case for some advanced clearances to be built in for potential investors, with a form of conditional guarantee. I shall cite an extreme case. If an investor puts in the top figure of £30,000 and the money and relief is turned down, he will need—because he is on the 60 per cent. rate—an income of £75,000. It must be a tremendous disincentive to have to find that £45,000 over and above the £30,000 and must cause the investor to stop and think before encouraging a would-be entrepreneur to start. Let us consider the smaller amount of £2,000, with the investor paying 40 per cent. If his claim for relief is turned down, he must find another £1,333.
I am conscious of the time and of the pressure of business, but I am also conscious of the failure, to date, of the start-up scheme. I do not say that everything in the scheme will be rectified by accepting the new clause or that everything will bloom tomorrow. I am sure that the new clauses will not be pressed to a Division, but those of us interested in small businesses are very concerned about the scheme. It is a marvellous idea that is not succeeding. It was originally started for only three years. There are two years to go, and even if the new clauses are accepted, it is difficult to see how they will be seen to have worked in that time. Therefore, I hope that the scheme will be extended by at least another two years and that investors will be encouraged to put their money in and to give this marvellous idea the genuine start that it deserves.

Mr. Ridley: I am grateful to my hon. Friends, because they have returned our attention to the business start-up scheme. As they said, the intention to develop and broaden the scheme and new clause 43, which we discussed earlier, seeks to do just that. I say to my hon. Friend the Member for Hertfordshire, South-West (Mr. Page) that provided that the subsidiary purchase would qualify under the business start-up scheme rules—in other words, that it is a new qualifying trade and so on—the company in which the shares are put may claim relief for investment under the business start-up scheme. To that extent, it could, depending on the details, assist in some management buy-outs.
The main thrust of the argument has been that the scheme is shackled. I agree that it is a marvellous scheme, and that it is unique in the industrialised world. It is suggested that the restrictions have shackled it. If anyone wants to put £10,000 or more into a small business and claim the tax relief of up to 75 per cent., none of the conditions and anti-avoidance devices which are mentioned in the new clauses will inhibit him. At the margin it is highly complex, but if somebody is a straight investor of the type for which we are looking there is nothing in the legislation to deter or frighten him. Too much is made of the suggestion that necessary defences against avoidance put off people who want to make a genuine investment. I do not believe that the idea can be sustained. We have tried to remove the difficulties and restrictions.
New clause 20 and new clause 27 run close together. The relief is available in the year of assessment in which the shares are issued. It depends upon the point in the financial year, but there should be no delay. The only delay is built in for when the company has not started to trade. It would be wrong to allow relief when the shares are issued but the company has not traded, because the idea is to encourage investment in a trading company. There was a rule that the company had to trade for 12 months before relief would be available. The Bill has reduced that period to four months. I do not believe that that will inhibit anybody who wishes to invest in that way.
New clause 21 is more difficult, because to allow any non-arm's length sales to have some form of taper or alternative treatment for the recovery of relief if the shares are held for less than five years would provide a loophole. It would be possible for someone who is paying a higher rate of tax to subscribe for shares and after a short period—one or two years—to transfer those shares to a relative paying a lower rate of tax and thus to make use of an avoidance de vice between 75 per cent. and 30 per


cent. of personal income tax and to offload a tax liability in that way. There is nothing wrong in giving shares to a relative or employee, but the point of the scheme is not to subsidise that process at the taxpayer's expense but to provide funds for business.
The same applies to new clause 23. I must be tiresome and resist new clause 23 because there would be nothing to stop a director or employee, if the clause were accepted, whether he owns 5 per cent. of the company or not, from easily and properly paying another £20,000 a year out of the company's funds. He could then reinvest that £20,000 in the company. If he could get tax relief on that investment he would save himself tax and save the company from paying tax on that part of its profit. It would be such an obvious and easy way not only to pay no tax but conceivably to milk the Revenue that it simply could not be allowed.
As to the suggestion that there should be Government or Revenue control of what is reasonable payment, I do not think that we should set up machinery to vet what everyone in small business is paid in order to ensure that it is reasonable. How would we know that it was reasonable?

Mr. Straw: Wage control.

Mr. Ridley: I am most grateful to the hon. Gentleman. His contribution to the debate has been outstanding. Those are just the words that I wanted. My hon. Friends can now see the dangers that they face. The hon. Member for Blackburn (Mr. Straw) was unable to restrain himself from mentioning wage control at just the right moment. Much as I would like to help, I do not believe that we can go down that route.
On allowances, my hon. Friend the Member for Hertfordshire, South-West did not wish to press the increase for one shareholder from 30 per cent. to 40 per cent., although my hon. Friend the Member for Upminster (Mr. Loveridge) certainly did. The question is really whether a person who owns 40 per cent. of a private company puts himself into a position in which he can influence the dividend and salary policy of the company. I suggest that he does, but it is a matter of judgment.
If we reached the stage when outsiders with business start-up scheme assistance could own 80 per cent. of the company it would be possible for 60 per cent. of the equity capital of the company—that is, 75 per cent. of 80 per cent.—to be provided by the taxpayer. I think that that would be going too far. It is already possible for the taxpayer to contribute 37½ per cent. of the equity capital of a small business through tax relief, which I believe is extremely generous. If we pushed it to 60 per cent., there would be too little commitment of their own money by the people concerned.

Mr. Richard Page: My hon. Friend pointed out logical defects in the new clauses and I appreciate what he says, but the start-up scheme is not being taken up. It will not be successful unless there is some change to re-sell it to investors and to the accountancy profession. My hon. Friend gives perfectly logical reasons for not accepting our suggested improvements, but unless he produces some further boost and encouragement the scheme will remain dead. That is the reason for our clutch of new clauses, defective though they may be.

Mr. Ridley: If my hon. Friends constantly talk of complications, restrictions and difficulties causing trouble, they will persuade investors that problems exist when in fact they do not. The claim that the scheme is not working is another way of sowing doubts and pouring cold water on an excellent scheme.
Information as to whether the scheme is working and how many people are taking it up is not yet available because investors have not yet put in their claims. We know that the funds approved as collective investment vehicles raised a total of about £11 million by 5 April this year, although not all of that has so far been invested in new companies. Therefore, there is no evidence that the scheme is not working and the claim that restrictions are putting people off is not proven. If instead of looking for difficulties we tell people how marvellous the scheme is, that the restrictions will not be a nuisance to investors, that the scheme will be widely taken up and how valuable it will be, that attitude is likely to sell the scheme. That is what is needed. Nevertheless, I am always happy to consider ways to remove unnecessary restrictions, as I hope that I have shown today, although I cannot quite recommend any of the proposals put forward by my hon. Friends.

Mr. Loveridge: The Financial Secretary said that the point is to bring in funds. We want more investment. The nation needs the investment. It would have been more impressive had the Financial Secretary been able to give us figures for the total take-up at this stage.
We accept that the Government are trying to make the scheme work. One thing that the Financial Secretary said surely cannot be correct. My hon. Friend the Member for Luton, East (Mr. Bright) and I said that the limit of relief for investment by an employee should be put at £1,000 a year. In those circumstances, it is impossible to see how tax avoidance on the scale mentioned by the Financial Secretary could conceivably arise. It could not. The Government are anxious to make this excellent scheme work. They have made concessions to the proposals put forward by my hon. Friends and myself in the past. We believe that in the end they will have to make more concessions, on the lines that have been suggested today, to make the take-up of the scheme adequate and to make it the success that the Government desire it to be.
In the light of what has been said, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 38

ELECTION AT START OF MATERIAL DEVELOPMENT

`(1) Where a person who—

(a) has a major interest in any land, and
(b) is liable, apart from this section, to give notice to the Board under sub-paragraph (1) of paragraph 36 of Schedule 8 to the Development Land Tax Act 1976 (hereinafter referred to as "the Act of 1976") of a project of material development of that land or part of it,

gives notice to the Board within the time limited by that sub-paragraph of his election under this section the provisions of the next succeeding subsection shall have effect.

(2) Notwithstanding anything in section 2 of the Act of 1976 (which provides in certain cases for land to be treated as if disposed of and re-acquired), where an election is made under subsection (1) above the start of the project referred to in that subsection shall not constitute a deemed disposal for the purpose of the Act of 1976 and accordingly development land tax shall not be chargeable by reference to that start.

(3) This section shall be construed as one with the Act of 1976 and shall apply to any notice of election given not earlier than the passing of this Act.'.—[Mr. Heddle.]

Brought up, and read the First time.

Mr. Heddle: I beg to move, That the clause be read a Second time.
In doing so, I should inform the House that I tabled the new clause on behalf of the House Builders Federation and, in accordance with the traditions of the House, I should declare an interest as a consultant to a firm of chartered surveyors which does not act in respect of residential development and, I suspect, derives little or no income from handling clients' cases which relate to development land tax. Nevertheless, it is appropriate that I should put that on the record.
It goes without saying that Britain's economic recovery depends largely upon the construction industry being given all the encouragement and stimulus possible, because from the flow of new homes comes the production of new carpets, new household equipment, new furniture and so on. It is appropriate to remind the House that in the previous two Budgets my right hon. and learned Friend has done much to iron out the inequities and the anomalies of the development land tax which the Government inherited from the previous Administration.
The House will recall that in the 1980 Budget my right hon. and learned Friend reduced taxation from the punitive level of 80 per cent. down to 60 per cent. and in last year's Budget he went one step further down the road to reality by introducing a principle of advance assessments whereby a builder, a developer or a contractor would at least know what his liability for development land tax would be before he started relevant development.
New clause 38 has been tabled as an attempt to persuade the Government of the genuinely unsatisfactory nature of the whole concept of deemed disposal, which underlies a whole sector of the cases in which development land tax is chargeable. It seeks to stop the Inland Revenue from treating the start of a project of material development on a site as though the owner had sold it at that time at market value. I remind the House that development land tax, assessed on deemed disposal basis, is the only basis of taxation in this country where the taxpayer is required in principle to pay tax before a profit has been made. Indeed, it is the only form of taxation upon which he is not able to offset any development loss against any development gain.
The change in last year's Finance Act which increased the allowance for house builders on base value—what is known as base value C—from 15 per cent. to 50 per cent. was generally welcomed by the construction industry as providing some much needed and overdue flexibility in the taxation system to ensure that house builders were not discouraged from developing sites generally nor developing inner city sites in particular. As my right hon. and learned Friend made clear in his 1981 Budget Statement, he wished to retain development land tax as a concept, as a method at least of taxing windfall speculative gains. I am sure that no one quarrels with that.
The recent modifications that my right hon. and learned Friend introduced will go some way to relieving the tax burden on house builders, whose land at least is treated, as are all other forms of trade and industry, as stock in

trade. None the less, there are still a number of aspects of this form of taxation which adversely affect the construction industry.
The 50 per cent. uplift may still be insufficient to remove the doubt about the redevelopment of inner city sites. Furthermore, an increase in the allowance does little to alleviate the high administrative costs attached to the collection of development land tax, since the Revenue still needs to monitor each transaction and still needs to assess the liability on deemed disposal in order to assess the potential liability. This problem is particularly acute in respect of the deemed disposal mechanism, which was affected only indirectly by the 50 per cent. uplift.
There is no doubt that the increase in the allowance for the base value will reduce the large number of cases where the deemed disposal is disputed by the builder. However, the practical problems surrounding the deemed disposal in terms of valuation and the bureaucracy of the Act's administration are still of considerable concern to the construction industry. The bureaucratic nature of the tax in particular has been accentuated by the recent changes, since the revenue from deemed disposal has declined while administrative costs have remained very much the same.
Since the development land tax collected at the point of deemed disposal combines low revenue with high collection costs, there is a very strong case, in terms at least of reducing Government expenditure and at once encouraging the construction industry to develop, for eliminating the deemed disposal assessment at the start of a project and replacing it with the normal form of taxation on trading profits. The new clause is designed to achieve this end.

Mr. Wakeham: I appreciate my hon. Friend's deep knowledge of, and untiring efforts on behalf of, the construction industry. It is an important industry, and it is fortunate to have such an eloquent spokesman in the House. He presses me to agree to his clause, which seeks to avoid the development land tax charge that arises on the commencement of material development.
The charge on the commencement of material development is usually criticised because it is claimed that it imposes liability to DLT before a developer begins to receive any income from a development. We have done something to assist here. The tax on deemed disposals does not have to be paid immediately. The tax can be spread over eight years, and the Finance Act 1980 extended the period before the payment started from one year to two years. Effectively, this means that developers do not have to complete payment of the tax until nine years after the development has commenced. The facility to defer any payment of tax for two years and then to spread the balance over nine years goes some way to answer the charge that the tax on a deemed disposal has to be paid before the development can produce income.
As well as improving the instalment provisions, the Government have, since 1979, made various other important changes which have mitigated the effect of the charge on a deemed disposal, particularly for house builders. I appreciate that this is not going as far as my hon. Friend wishes to see. We shall, of course, keep matters under review. I regret having to disappoint my hon. Friend by being unable to go any further.

Mr. Heddle: I am grateful to my hon. Friend for his opening remarks. In view of his undertaking that he will keep the matter under review—

Mr. Campbell-Savours: That means a lot!

Mr. Heddle: When we return to office following the next general election I hope that we shall wipe away the last remaining anomaly that the Government inherited. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 40

MENTALLY HANDICAPPED ADULTS' ALLOWANCE FOR COST OF COMPLYING WITH INLAND REVENUE TAX RETURN REQUIREMENTS

'Any mentally handicapped adult required by the Inland Revenue to have his tax return signed by a Receiver appointed by the Court of Protection shall have the Court of Protection's commencement fee and annual management fees taken fully into account in calculating any tax payment or tax refund due.'.—[Mr. Higgins.]

Brought up and read the First time.

Mr. Higgins: I beg to move, That the clause be read a second time.
The clause is supported by my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop). We started our debates with a major matter involving a radical change in Government borrowing. I do not suggest that the new clause has anything like the same significance. However, it involves an issue that should be brought to the attention of the House even at this late hour of five minutes to two o'clock in the morning. It came to my notice only a couple of months ago and it involves a wrong that we should put right.
It came to my attention that a mentally handicapped person was under age and was the beneficiary of two very small trusts. Being in that position he was required to claim for a refund of tax because the distributions were made gross. That had been the situation for some time and his father signed the tax forms on his son's behalf and the refunds were duly made. It was discovered that once the son became over age the Revenue would be prepared no longer to accept that arrangement. The father was told that a claim could be made only through a receiver appointed by the Court of Protection. He considered that to be an unnecessary requirement. He discovered that for providing the service of completing the tax form, or merely signing it, the Court of Protection required a commencement fee of £50 and annual management fees that started at nil for £0-£500 and increased to £25 for £500-£1,000, £75 for £1,000- £2,000 and £150 for £2,000-£3,000 and so on. Although the son was the beneficiary of only two small trusts, the costs that he incurred in securing the tax refund and paying the receiver as a result of the Inland Revenue's requirement was no less than half of the refund to which he was entitled. This is a disgraceful situation and one that should be brought to the attention of the House.
I took the matter up with my right hon. and learned Friend the Chancellor of the Exchequer, who sent me a reply. He explained that there were reasons why it was felt necessary for the arrangement to be made. He observed that the Revenue is repaying tax from public funds and that it has a duty to ensure that payments are made only to those who in law are entitled to receive them, and that it could be called upon to make the repayment a second time with little or no chance of recovering the first repayment.
My right hon. and learned Friend stated that while it is possible for an arrangement to be made with the parent,

for example, when the mentally handicapped person is under age, it is necessary for the form to be signed by a person who has the responsibility of ensuring that the funds are properly disbursed when he becomes of age. I understand all that well. However, the situation that I have described is still one that the House should not accept. We should make a change. Therefore, the question arises of what possible changes we can make.
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The new clause that I have tabled suggests that, effectively, the costs of making the claim should be allowable as an expense for tax purposes. My constituent may still be left out of pocket, so no doubt there are alternative ways of proceding. One would be for the Department of Health and Social Security to make some allowance to the mentally handicapped to cover that situation, although it would be strange for the Government to have to make a grant to meet a situation that has been generated by an unsatisfactory set of rules. Another alternative would be to waive the fees in the case of mentally handicapped people who are claiming for tax allowances. That might create problems if the receiver were necessary for other purposes.
This situation should be put right in one way or another. Therefore, I hope that my hon. Friend the Financial Secretary can give us an assurance that he will look into the matter deeply and by one means or another make sure that the mentally handicapped, in order to obtain a tax refund to which they are entitled, do not have to incur the sort of expense involved in the case that I have brought to the attention of the House.

Mr. Ridley: My right hon. Friend the Member for Worthing (Mr. Higgins) was right to raise this matter because it is obvious to every hon. Member that the situation is not exactly how we would like it to be. I do not know whether my right hon. Friend was right to raise the matter on the Finance Bill. We must start from the proposition that the Inland Revenue has a duty to make sure that any tax paid by any citizen or any refund made to any citizen is correct and, in the latter case, is made to the right person. It would be wrong to work on the basis that the Inland Revenue will pay any citizen the cost of compliance with the law out of tax revenue. The law for all sorts of citizens is that they must bear their own compliance costs, particularly in relation to taxation.
I am not lacking in sympathy for what my right hon. Friend seeks to do. I wonder whether the remedy will lie with the Inland Revenue. The Lord Chancellor's Department set up the Court of Protection. It insists on the appointment of a receiver to protect mentally handicapped people. It sets out the scale of fees. The scale of fees could be reasonable where the receiver does the work of an accountant for the mentally handicapped person, who may have no one to do it for him. On the other hand, the fees seem unreasonable where the receiver, as in the case of my right hon. Friend's constituent, is the person's father, and he does the work.

Mr. Higgins: The receiver is not my constituent's father, unfortunately. That was the arrangement before my constituent came of age. It was a sensible arrangement and no charge was made. The receiver is charging the fee in this case purely for signing the form to ensure that the money goes to the right person. That is all that he is doing. The accounts are being prepared by a firm of accountants.


Therefore, perhaps my hon. Friend has a solution. If all the receiver is doing is preparing a form, perhaps the right answer is to ensure that the fees are appropriate and not on the massive scale that I have described. The danger then is that we may fall between several different Ministries. I want my hon. Friend to assure me that he will contact the Lord Chancellor's Department to see whether a sensible arrangement can be made if the new clause is not accepted.

Mr. Ridley: I think that the Court of Protection can appoint anybody to be a receiver, including the mentally handicapped person's father. I believe it to be right that we should study the question to ensure that the fees charged are commensurate with the work done and not excessive for work of very small calibre. In that regard I undertake with great pleasure to discuss the matter with my right hon. and noble Friend the Lord Chancellor. I heard of the matter only a short time ago, and I should like him to allow me to look into the whole question to see whether we can find a way of improving the arrangements.

Mr. Higgins: I am very grateful to my hon. Friend for that reply. I think that the House will agree that it does not particularly matter in what way it is done, and one understands some of the difficulties that he has mentioned. What is absolutely clear is that we ought not to allow the present arrangement to continue. I hope that we can find a solution. If not, I shall continue to pursue the matter. On that basis, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 4

AVIATION GASOLINE

Mr. Michael Colvin: I beg to move amendment No. 1, in page 3, line 11, leave out
'one half of the rate specified in that subsection in relation to light oil'
and insert
'3·05p'.
The amendment calls for a further reduction in the rate of duty on aviation gasoline—otherwise known as avgas—which is used in piston engines from the present 27½p per gallon, which is about half the rate before the Budget, to 3·05p per gallon, which is the same rate as the duty on aviation turbine fuel, known as avtur, which is used in jet aircraft.
The basis of our argument is simply that all aviation fuels should be taxed at the same rate. As the Minister is aware, this logical move would be of particular help to our general aviation industry. The industry appreciates that the Chancellor of the Exchequer has already recognised the economic pressures on the industry and that he has taken them into account in reaching his welcome decision to reduce the avgas duty rate to half the rate on petrol, or mogas as it is known. I acknowledge that that has been of significant benefit to general aviation, but it still leaves avgas nearly twice as expensive as avtur, with a difference of about £1·08 per gallon including all duties, while in the United States the difference between avgas and avtur is only 15p. As a result, our industry is losing valuable flying training business to the United States for commercial and private pilots.
The Minister will not be displaying his usual infallible common sense if he does not accept that it is not only

illogical but unfair for one type of aircraft to use fuel costing 27½p in duty while another aircraft, probably carrying out identical operations, uses fuel costing only 3½p per gallon in duty, simply because a different type of engine is fitted to that aircraft.
On 21 May this year I received a written answer to a question that I had tabled to the Chancellor of the Exchequer asking
what were the decisive considerations in his determination of the new rate of duty on aviation gasoline.
I should like to comment briefly on the points contained in the reply. My hon. Friend the Economic Secretary said:
The new rate of duty … was determined after a review which included consideration of the following factors: (a) the uses of aviation gasoline for business and leisure purposes."—[Official Report, 21 May 1982; Vol. 24, c. 211.]
There is a common misconception that general aviation is a fun and leisure industry. Ninety per cent. of all general aviation is for business, industrial or commercial purposes. Piston engine aircaft operated by airlines—mainly third level airlines and air taxi businesses—account for 65 per cent. of the total general aviation hours each year, pilot flying training accounts for 20 per cent. and agricultural flying for 5 per cent., which leaves only 10 per cent. to cover everything else, including leisure. It is absurd that airlines operating jet aircraft, 80 per cent. of whose passengers fly for leisure or pleasure, use fuel taxed at only 3·5p per gallon while piston engine aircraft use fuel taxed at a rate almost eight times higher.
My hon. Friend's second point referred to surface vehicles and his fourth point to the relationship between avgas and petrol, otherwise known as mogas. Even if my amendment were accepted, avgas would still be more expensive than mogas and likely to rise in price more quickly.
My hon. Friend's last point about duty evasion and misuse of avgas in motor cars is no more than the old chestnut produced by the Treasury with its super-cautious attitude to the matter. It also shows that the Treasury has failed to understand the problem. Avgas has only a limited distribution. There are 60 outlets at airfields around Britain disciplined by British Petroleum and Shell. Cars will not start to use it instead of petrol. I cannot see impatient motorists queueing up at aircraft dispersal areas for fuel that is much more expensive than the petrol that they can buy in the high street. Even if they did, misuse could easily be policed and stopped.
Last year the duty on avgas raised about £5 million. This year, thanks to the Budget, it will be halved. My amendment would cost the Treasury another £2 million. However, there would be bonuses, because general aviation would be greatly encouraged. That would be consistent with the Government's policy of helping smaller businesses. Regional airports would benefit and there would be a useful spin-off for the manufacturing and trading side of the industry.
I remind my hon. Friend of the support for the proposition of the British civil aviation standing conference that covers almost the entire industry. I congratulate the General Aviation Manufacturers and Trading Association on its campaigning zeal. The more I hear the arguments, the more I convince myself that this amendment is fully justified. I trust that my hon. Friend is equally convinced.

Mr. Bruce-Gardyne: I congratulate my hon. Friend the Member for Bristol, North-West (Mr. Colvin) on his


self-persuasiveness. I listened to his arguments with sympathy and concern, but I must confess that his persuasiveness towards me was slightly less than his self-persuasiveness. I hope that he will not take it amiss if I say that he was slightly less than generous to my right hon. and learned Friend the Chancellor, who went a long way in the Budget—as far as he believed that he could—to meet the case that was made most effectively by GAMTA. One can also mention the name of my hon. Friend the Member for Woking (Mr. Onslow) who, for reasons that the House will understand, can no longer be involved in such matters.
2.15 am
I do not think that the Government can go the stage further that my hon. Friends seeks in the amendment. I should like to correct one point of fact. My hon. Friend referred to the duty on avtur as 3·05p. I am advised that the actual rate of duty is 3·50p. That is, however, a minor point.
One complication is that the amendment, if accepted by the House, would require the Government to pay back all the differential duty paid by the industry since the Budget. That is not a prospect that we would view with any enthusiasm. My hon. Friend referred to the answer I gave on 21 May, which described the considerations that we have had to take into account in making the change in the duty on aviation gasoline in the Budget.
The main difficulty about the amendment is the risk of what I am advised could be a significant diversion of avgas to use in road vehicles. There are a variety of grades of avgas. The low grade 80/87 octane avgas, now the only avgas produced in the United Kingdom, would be relatively easily diverted to use in motor vehicles. There have been cases, I understand, where this has happened. At present, 80/87 avgas retails typically at about £1·90 a gallon at the point of delivery to an aircraft. A reduction of the duty rate to 3½p per gallon would bring the retail price of such avgas down to £1·54 a gallon or even less. My hon. Friend will appreciate that this is quite a long way below the current price for motor spirit. This would give a definite incentive to divert for road use.
We have taken in this clause powers to increase the control of the utilisation of avgas. Nevertheless, the policing of these controls would be difficult. If the Government accepted a move in the price by reduction in the duty to a point where there would be a strong incentive for diversion of the spirit for use in motor cars, the problems of control would be considerable, especially at a time when we are trying to achieve economies in Customs and Excise manpower.
I understand the arguments that my hon. Friend has advanced. I have to say regretfully that I do not believe that the Government would be justified in taking the risk of what could be a significant diversion and misuse, particularly of the lower grades of avgas, by accepting the amendment. I cannot therefore take that path.

Mr. Colvin: With the leave of the House, I should like to inform my hon. Friend that I do not accept all his arguments. They will be studied in great detail by the industry. I shall refrain from forcing a Division at this hour of the morning because I appreciate the difficulties. My hon. Friend has, however, shown that he is beginning to understand the real issues involved. I am satisfied that a

marker has been put down, perhaps for next year's Budget. I shall be using every opportunity between now and then to press home the points that I have made.
I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 5

ANNUAL RATES OF DUTY ON GOODS VEHICLES

Mr. Bruce-Gardyne: I beg to move amendment No. 3, in page 140, line 19, after 'unit', insert
`having two axles'.

Mr. Deputy Speaker (Mr. Bernard Weatherill): With this it will be convenient to take Government amendment No. 4.

Mr. Bruce-Gardyne: This pair of amendments relates to the restructuring of vehicle excise duty on heavy lorries as provided for in schedule 5 to the Bill. The amendments are wholly technical and remove all possible ambiguities in paragraph (14) of schedule 5.

Question put and agreed to.

Amendment made: No. 4, in page 140, line 21, after `unit', insert
`having two axles'.—[Mr. Bruce-Gardyne].

Schedule 6

BETTING AND GAMING DUTIES

Mr. Jim Lester: I beg to move amendment No. 5, in page 153, line 1, leave out paragraph 2.

Mr. Lester: The amendment is in the name of myself and several other right hon. and hon. Members who have a concern for good football, its place in our society and the need for a healthy thriving industry that is the joy of millions. This is an interesting week in which to have the debate as it marks the end of the World Cup. The huge coverage of this event may have offended a minority, but it has resulted in the Italian Government retaining office, despondency in Argentina, a sad rise in the suicide rate in Brazil, heart-searching in England and Scotland, and considerable pride in plucky Northern Ireland getting as far as it did. It has had more column inches in the press, and more television coverage than anything that we do in the House. It is sad that the debate should come at this time of the night when the terraces are rather empty.
The purpose of the amendment is to correct the impression that the football pools are in a position to stand the extra taxation imposed by the schedule, and to ask of the Government what plans they have to restore the £¼ million that will be lost to the Football League and the Football Association through these changes, and through them, those clubs that are not the glamour boys at the top of the First Division, but who are the solid professional backbone of soccer in our towns and cities.
The Economic Secretary, in a letter justifying the increase of duty from 40 per cent. to 42 per cent. claimed that:
in the 1981–82 football season the turnover of the pools has been particularly buoyant … We shall … continue to watch the situation, but there is at present no reason to believe that the total stakes will not continue to rise.
I understand that that is not so. The pools business is not buoyant. Over the 1981–82 season all firms in the Football Promoters Association reported a decline in the number of


coupons received. The number was down nearly 7 per cent. for most of the year, but it worsened to 8 per cent. in April on a year on year basis. This is an unheard of pattern of events, only previously experienced in the period of gloom in the pools industry in the late 1960s. Only radical action then saved the pools from disaster and they know that any decline, once started, will prove self-accelerating. It is obvious that less business means diminished prizes, which means less business. There is no reason why the pools should automatically continue as a thriving operation, and once it goes into the vortex it may never recover.
In terms of cash turnover the Government's view is an equally misleading one. The increase in stakes in the 1981–82 season was up by 17 per cent. on 1980–81, but this conceals a state of affairs that is not as healthy as it looks. Stake units were increased by one-third in 1980–81. The most pessimistic forecast would be for such an increase to produce an uplift of 23 per cent. or more in the stakes received by the pools companies. To receive only a 16 per cent. increase is therefore a poor performance, and the factors that are involved do not permit optimistic expectations for the years that follow. One cannot look for any notable increase unless something changes. The industry sees this extra tax as a fresh lead weight in the saddle pocket of a faltering horse, and the pools promoters cannot be encouraged by it—indeed, quite the contrary.
I share that concern because of the effect that it could have on employment, particularly in areas of the highest unemployment. The simple, practical truth is that, if the industry declines and the number of bits of paper that it receives each week go down, the work of handling those bits of paper must require fewer hands.
If one looks at the league table of employment in the pools industry, in areas where the need is greatest, one sees that no other industry has such an excellent record. Out of a total of 9,312 employees, 6,300 are employed in Merseyside, 1,000 in Glasgow, 850 in Cardiff, only 800 in London, and only 250 in Leicester. My worry is that, by singling out this industry for an extra tax of £11 million, the Government may damage the future of the industry and its ability to employ people in those sensitive areas of the country.
The second point was the £250,000 shortfall that will go to both the League and the Association. It is true that football needs to look to its future and that changes need to be made. However, football is not strong financially. The collapse of Wolverhampton Wanderers could be the forerunner of many other clubs. Clubs depend on a variety of sources for cash to maintain and improve their facilities so that they can be more widely used. Football is now in such a parlous state that it cannot stand further reductions and survive in its present form. It is a tragedy that we are holding this debate in this week in Britain, which gave football to the world.
I ask the Minister to consider whether he cannot forgo the unfair increase in taxation on the pools promoters. Can he ensure that the game itself and all that depends on it—his future revenue, the pleasure of millions, and the industry—will not be the loser?

Mr. Denis Howell: I support the hon. Member for Beeston (Mr. Lester) in the all-party proposition that he has put to the House. The fact that it is all-party suggests, as he said, that football is of enormous social importance in the life of our

country—and not just at the top. The hon. Gentleman rightly outlined the difficulties facing many of our professional clubs.
In sport one cannot divorce international performance by a national team from the inspiration or the effect that it has. That applies right down to our schools. We are debating our national sport, and its health must be important to all of us. We should encourage it in every way. We should encourage revenue to go to schools and the amateur side of the game, as well as to the professional clubs which, to their credit, are increasingly providing facilities for youth and the communities that they serve. The Government have left the social importance of sport out of their squalid calculations.
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Perhaps the most important argument is that all recent Governments have discriminated against the football pool punter compared with other gamblers. It is not to the credit of the House that 42½p of each £1 put on a football pool goes to the Chancellor of the Exchequer before a penny is taken for expenses, before prize money is extracted and before any goes back to football. But for each £1 spent on bingo the tax is only l0p. A total of 90p of the bingo player's £1 will be used for expenses and the distribution of prizes. That cannot be fair.
For off-course betting the tax is only 8p in the pound, so the position is even more ridiculous. Under the "ITV Seven" system, only 8 per cent. tax is paid. If a person bets on each transaction, he pays seven times 8 per cent., but, because of the ITV roll-up bet, that does not happen. I am not encouraging the Chancellor to increase the tax on multiple betting, but I am saying that the system discriminates against the football pool punter.
The law of diminishing returns is beginning to operate. The system is nonsense for the Treasury. The letter quoted earlier is a give-away of Government thinking. The Minister said that the pools turnover was particularly buoyant. That is not so. He has been advised wrongly. The amount of betting on pools has reduced substantially It went down by 7 per cent. last season as a whole and by 8 per cent. since April. Since the Budget the position has worsened. There is nothing surprising in that.
The Royal Commission on Gambling, in its report in 1978, stated:
The rate of taxation—40‥—is high when considered as a tax on stakes. But it is also high when regarded as a tax on expenditure. In 1975–76 punters collectively spent 72‥ of their stakes (the other 28‥ Was returned in prizes). The tax was 56‥ of their expenditure. We recorded in our Interim Report our view that with tax at this level, there was no scope for squeezing more from the pools, for sport or for the Exchequer. The rate of taxation is markedly higher than the tax on any other form of gambling, and it is partly because of this that the pools provide the punter with a lower rate of return—less than 30 per cent—than any other form of gambling. We believe that the rate of duty is unjustifiably high. It is excessive looked at on its own or in the context of practice abroad. We recommend that pool betting duty should be reduced from 40 per cent. to at most 37 per cent.
We should like to know from the Minister today why, in the construction of the Budget, that advice has been not only ignored but completely contradicted.
I have said that a tax on football pools is no credit to any Government, including that in which I served. I know the arguments that went on. This argument did not start with the Royal Commission on Gambling. It goes back a long way, but in modern times it started with the Chester committee. The Minister looks pained. I must tell him that


I established that committee. One of its recommendations was that there should be a levy on all gambling for the benefit of football. I spent much time trying to persuade my Treasury colleagues when I was a Minister to adopt that recommendation.
The most difficult Minister was the then right hon. Member for Birmingham, Stechford now the right hon. Member for Glasgow, Hillhead (Mr. Jenkins). When I tried to persuade him to adopt the Chester committee's report and get some money back into football, which desperately needed it, he persuaded the Cabinet, much to my chagrin, that we did not want that but to set up a Royal Commission to have another look at the matter. Therefore, we had the Royal Commission instead of the levy board that the Chester committee recommended to the House.
I give that brief history so that the House will appreciate how long we have been looking at the problem and how matters have continued to deteriorate in the meantime.
Another small set of statistics will illustrate the points that we have been making. Turnover on betting duties from racing in the 10 years from 1972 to 1982 has produced an increase of 201 per cent. The total turnover on all types of betting duties in those 10 years was 109 per cent., but the pool betting duty increased by only 118 per cent. in that period. Again, the figures emphasise that the law of diminishing returns has operated successfully for quite some time, apparently unnoticed by our friends in the Treasury.
The effect is totally unfair. Football pools now pay a tax of 42·5 per cent. Therefore, the tax as a percentage of money lost is 57 per cent. That is before expenses or prizes or any contribution to sport.
On off-course betting on an 8 per cent. gross stake the tax as a percentage of money lost is 40 per cent. As regards bingo, on a 10 per cent. tax, the tax as a percentage of money lost is 33 per cent. Casinos on the new formula have a 16 per cent. loss. On gaming machines, the loss is 15 per cent. Therefore, on any comparison, this tax is blatantly unfair to the person who wishes to enjoy a flutter or a small gamble on the football pools. Most of them are not the big-time gamblers who invest hundreds of pounds at racetracks or casinos, but people for whom the pools offer some interest in life. They can try to get their eight score draws up each week.
How does all this affect football? By an odd quirk, the net result is that the Government will increase their revenue by £11 million to £14 million, but football revenue will decrease, because the football pools have now got to pay 42½ per cent. tax before calculating how much they will pay in copyright to the Football League. I am glad that the president of the Football League is here to support us. I was very pleased to notice that his team, Notts County—which operates almost on a shoestring—was doing very well.
However, while the new 2½ per cent. addition to football pools will increase the revenue to the Treasury, it will decrease the revenue to football. That is very serious. We need not hide the fact that football, our national sport, faces considerable problems. They are not entirely of its own making. Most people now realise that the troubles that ferment at football grounds are the troubles of society, using football as the vehicle of expression. They have little, if anything, to do with football as a sport. Regrettably, one need only go to some

of our London clubs to see the Fascist organisations and others causing considerable difficulties. That means that the football authorities incur colossal costs. For example, an enormous amount is spent on policing inside the grounds.
The various ministerial working parties on football crowd behaviour and all who have considered the problem realise that our football grounds, which were built at the turn of the century as products of the Industrial Revolution, need a long of money spent on them for modernisation.

Mr. Straw: Including Blackburn Rovers.

Mr. Howell: That club is worthy of mention as one of our oldest and most historic teams.
In the interests of society, law and order and peace it is vital that football clubs should have the resources to provide more seating and other facilities. Some of us think that it is more important to ensure that our football grounds become the centres of sporting activity in the communities that they serve. Under present arrangements, the Football League receives about £4·5 million per annum from the football pool promoters and another £4·75 million via the Football Trust. We are all grateful to successive Treasury Ministers for having acknowledged that contribution. The spot-the-ball competitions remain tax-free, and long may that continue to be the case. However modest the payments, the Football Association will suffer even more because its job is to develop the game at the grass roots—in the schools and clubs. However, for the reasons that I have given, the professional sides have heavy ground costs. Therefore, the minimum amount of additional return that the Treasury is to get will reduce the amount available to football at a time when football cannot afford it and when the national interest demands that more resources should be put into our professional grounds.
The other reasons are equally compelling. The pools have declined and taken a nosedive. It is in the Treasury's interests to assist them and not to impose a further handicap. I hope that the House will join in deploring the discriminatory effect that this additional tax will have on people who take part in football pools compared with any other form of betting.

Mr. John Carlisle: I support my hon. Friend the Member for Beeston (Mr. Lester) and endorse the sentiments expressed by the right hon. Member for Birmingham, Small Heath (Mr. Howell), who has earned the great respect of the House for his deep and expert knowledge of football. I represent a constituency that has one of the finest football teams in the country.
The right hon. Member for Small Heath did not underestimate the severe effect that this increase in football duty could have upon football clubs. It could not come at a worse time because both large and small football clubs are suffering from the recession. They had a terrible winter because of the weather, and they are suffering from the great social problems that affect us all. In many towns like mine, football clubs have to provide live entertainment. That is now threatened if this duty is imposed. It is right that the House should discuss it.
Clubs' expenses increase daily, especially those that result from legislative requirements for the safety of grounds, and the cost of the police, as the right hon.


Member for Small Heath mentioned. Football clubs have suffered from inflation and the recession as much as anybody else. They are the lifeline of many towns in the industrial Midlands. It is nonsense for the Treasury to take more money out of the game, under the mistaken impression that the pools industry is thriving. I ask the Economic Secretary to think about it again.
The football world has a great ally in the Minister with responsibility for sport. In a recent speech to the Football Association he said:
It makes me appreciate even more how even more perilous the situation would be without the injection of funds into football by the Pool Promoters Association over the last six years.
Although we are not here to discuss the football grounds improvement trust, it is a fact that without that money and the money that has come from betting tax over the years many football clubs could find themselves in a similar position to that of Wolverhampton Wanderers if matters do not improve. I implore the Economic Secretary to look carefully at the tax and to realise that we are not crying crocodile tears for an industry that sometimes suffers adverse publicity through no fault of its own. I urge the Economic Secretary to think about the damaging effect that this tax will have on football clubs and to reconsider his decision.

Mr. Bruce-Gardyne: I congratulate my hon. Friend the Member for Beeston (Mr. Lester) on the judicious timing of his amendment. He was right to draw attention to the stirring events of the last few days and the background that they provided for our discussion of the amendment. He said that the outcome of the World Cup had saved the Italian Government. It occurred to me to wonder for how long it had saved them, but perhaps one should not look at things in that way in debating this amendment at this time of night.
I am slightly inhibited in that we had a fairly extensive discussion in Committee on precisely this proposition and I cannot add greatly to what I said then. The reason why my right hon. and learned Friend the Chancellor of the Exchequer decided that it was appropriate to make this increase in the pool betting duty was that in a Budget at a time when we believed that it was appropriate generally to increase the duty on different forms of betting and gaming we did not feel that we could reasonably make an exception of the pools betting duty.
The right hon. Member for Birmingham, Small Heath (Mr. Howell) and my hon. Friend the Member for Beeston referred to the danger of our becoming embroiled in the law of diminishing returns. I readily admit that it is always an anxiety of the Treasury that it may be seeking to extract revenue beyond the point at which that law sets in. There is little evidence to sustain that proposition in this case, however. In recent years, total stakes in pool betting have risen from £261 million in 1976–77 to £284 million in 1977–78, £299 million in 1978–79, £344 million in 1979–80, £396 million in 1980–81 and £440 million in 1981–82. Moreover, I remind the House, as I reminded the Committee, of the remarkable fact that when the duty was increased in 1974—not from 40p to 42p, but by a far larger amount from 33p to 40p—there was no fall-off in the amount of stake money going into pools betting. On the contrary, in the ensuing year the total increased yet again. On past experience, therefore, I see no reason to expect that we shall run into the law of diminishing returns at this point.
I recognise, as I did in Committee, the teachings of Lord Rothschild and his Royal Commission. As I explained to the Committee, I have never believed that Royal Commissions should be treated as infallible or their reports as Holy Writ. Indeed, I recalled to the Committee the definition given by the right hon. Member for Huyton (Sir H. Wilson) of a Royal Commission as a body to take minutes and waste years. From what we have heard today, that seems to have been precisely the background to the appointment of the Rothschild Commission. I have read its comments carefully and I treat its judgment with respect, but I do not find it an overwhelming argument against the change proposed by my right hon. and learned Friend the Chancellor.
On the implications of the increase in the tax for the arrangements between the Pools Promoters Association and the football authorities, I entirely understand the anxieties expressed by my hon. Friends the Members for Beeston and for Luton, West (Mr. Carlisle) and by the right hon. Member for Small Heath, but it is important to put this in perspective. My hon. Friend the Member for Beeston referred to a prospective loss of revenue of £¼ million as a result of the increase in duty. That is probably on the high side. The figure that was quoted in Committee, which would probably stand up to inspection from the Opposition, was that there was a potential loss of revenue of about £200,000 that might otherwise accrue from the Pools Promoters Association to the football clubs. That would work out at under £2,000 per club. I accept what the right hon. Member for Small Heath and others have said about the serious financial position of many clubs at the moment, but £2,000 in one direction or another is a small matter compared with the scale of the financial problems that many of the clubs face.
I recognise the anxieties that the increase in the pools betting duty is liable to create. I accept that we shall need to keep it under review, and if it became apparent that the taxation was subject to the law of diminishing returns we should need to think again. But on experience I cannot say that I see the evidence to support that proposition.

Mr. Denis Howell: rose—

Mr. Bruce-Gardyne: I cannot give way. We have had a lengthy debate and I must bring my remarks to a close. We have had quite a debate on the amendment and, bearing in mind the extensive debate that we had in Committee, I have to tell the House that we do not accept that there is evidence to expect that the law of diminishing returns will intervene. We need the revenue. We believe that it would not be appropriate to leave pools betting out of the range of increases in duties on betting and gambling which my right hon. and learned Friend included in his Budget. I must therefore advise the House that we cannot accept the amendment.

Mr. John Golding: I wish to register the Opposition's disgust at the failure of the Minister to give way. It has long been traditional in debates which are not subject to a time limit and in which matters of practical detail are being debated that if an hon. Member wishes to challenge a Minister on his facts the Minister gives way. It is not in the best interests of debate in the House if the Minister refuses to give way, puts his head deep into a brief and refuses to argue the toss. We


can only conclude that the Minister has no case to present and is afraid of my right hon. Friend the Member for Birmingham, Small Heath (Mr. Howell).

Mr. Jim Lester: I am sure that the right hon. Member for Birmingham, Small Heath (Mr. Howell) has been in the House long enough to know that if he seeks to make a point or to correct anything that the Minister has said he can find a way of doing it.
This has been a short debate in the interests of all our colleagues who are still here at 3 am. We have proved that we have an all-party collection of Members that takes a real and active interest in football and wishes it to be viable in the future. We recognise that finance is critical to that end. We shall, I am sure, be having wider discussions with my hon. Friend the Economic Secretary as the figures emerge through the coming season. I hope that his pledge that he does not want to be party to anything which appears to concern the law of diminishing returns is a sincere one, and that when we are able to point out that that is the case he will change the tax.
With that assurance, I beg to ask leave to withdraw the amendment.

Hon. Members: No.

Question put, That the amendment be made:—

The House divided: Ayes 43, Noes 112.

Division No. 266]
[3 am


AYES


Booth, Rt Hon Albert
McWilliam, John


Callaghan, Jim (Midd't'n &amp; P)
Mitchell, Austin (Grimsby)


Campbell-Savours, Dale
Morton, George


Cocks, Rt Hon M. (B'stol S)
Parry, Robert


Concannon, Rt Hon J. D.
Penhaligon, David


Cook, Robin F.
Radice, Giles


Cryer, Bob
Roberts, Allan (Bootle)


Davis, Terry (B'ham, Stechf'd)
Ross, Ernest (Dundee West)


Dean, Joseph (Leeds West)
Sheerman, Barry


Dixon, Donald
Sheldon, Rt Hon R.


Dormand, Jack
Shore, Rt Hon Peter


Eadie, Alex
Skinner, Dennis


Eastham, Ken
Soley, Clive


Edwards, R. (W'hampt'n S E)
Spearing, Nigel


Evans, John (Newton)
Straw, Jack


Ford, Ben
Urwin, Rt Hon Tom


Foster, Derek
Welsh, Michael


Golding, John
Whitehead, Phillip


Hardy, Peter
Young, David (Bolton E)


Harrison, Rt Hon Walter



Haynes, Frank
Tellers for the Ayes:


Hooley, Frank
Mr. Lawrence Cunliffe and


Howell, Rt Hon D.
Mr. Allen McKay.


McCartney, Hugh



NOES


Alexander Richard
Brinton, Tim


Aspinwall, Jack
Brittan, Rt. Hon. Leon


Atkinson, David (B'm'th,E)
Brooke, Hon Peter


Baker, Nicholas (N Dorset)
Bruce-Gardyne, John


Banks, Robert
Bryan, Sir Paul


Beaumont-Dark, Anthony
Butcher, John


Bendall, Vivian
Cadbury, Jocelyn


Bennett, Sir Frederic (T'bay)
Carlisle, Kenneth (Lincoln)


Benyon, Thomas (A'don)
Channon, Rt. Hon. Paul


Berry, Hon Anthony
Clark, Hon A. (Plym'th, S'n)


Bevan, David Gilroy
Cockeram, Eric


Biffen, Rt Hon John
Cope, John


Blackburn, John
Crouch, David


Blaker, Peter
Dorrell, Stephen


Bottomley, Peter (W'wich W)
Dover, Denshore


Bowden, Andrew
Eyre, Reginald


Bright, Graham
Faith, Mrs Sheila





Fenner, Mrs Peggy
Osborn, John


Forman, Nigel
Page, Richard (SW Herts)


Fox, Marcus
Parris, Matthew


Fraser, Peter (South Angus)
Patten, John (Oxford)


Garel-Jones, Tristan
Porter, Barry


Goodlad, Alastair
Price, Sir David (Eastleigh)


Gorst, John
Rees, Peter (Dover and Deal)


Griffiths, Peter Portsm'th N)
Rhodes James, Robert


Gummer, John Selwyn
Rhys Williams, Sir Brandon


Hamilton, Hon A.
Ridley, Hon Nicholas


Hamilton, Michael (Salisbury)
Ridsdale, Sir Julian


Hawksley, Warren
Rossi, Hugh


Heddle, John
Rumbold, Mrs A. C. R.


Hogg, Hon Douglas (Gr'th'm)
Sainsbury, Hon Timothy


Hordern, Peter
Shepherd, Colin (Hereford)


Hunt, David (Wirral)
Silvester, Fred


Jessel, Toby
Smith, Dudley


Jopling, Rt Hon Michael
Smith, Tim (Beaconsfield)


Lang, Ian
Speller, Tony


Lester, Jim (Beeston)
Squire, Robin


Lloyd, Peter (Fareham)
Stanley, John


Loveridge, John
Stevens, Martin


Lyell, Nicholas
Stewart, Ian (Hitchin)


MacGregor, John
Stradling Thomas, J.


MacKay, John (Argyll)
Taylor, Teddy (S'end E)


Major, John
Thompson, Donald


Marland, Paul
van Straubenzee, Sir W.


Maude, Rt Hon Sir Angus
Waddington, David


Maxwell-Hyslop, Robin
Wakeham, John


Mayhew, Patrick
Waldegrave, Hon William


Mellor, David
Waller, Gary


Mills, lain (Meriden)
Warren, Kenneth


Mitchell, David (Basingstoke)
Watson, John


Moate, Roger
Wells, Bowen


Moore, John
Wells, John (Maidstone)


Murphy, Christopher
Wickenden, Keith


Myles, David
Wolfson, Mark


Needham, Richard



Nelson, Anthony
Tellers for the Noes:


Newton, Tony
Mr. Carol Mather and


Normanton, Tom
Mr. Robert Boscawen.

Question accordingly negatived.

Mr. Bruce-Gardyne: I beg to move amendment No. 6, in page 155, line 29, at end insert—
'6A. In subsection (2) of section 21 of the 1981 Act (duration of licences) at the end of paragraph (b) there shall be added the words "or
(c) a quarter-year licence for any period of three months beginning on 1st January, 1st April, 1st July or 1st October.".'.

Mr. Deputy Speaker: With this it will be convenient to take the following:
Government amendments Nos. 10 and 12.
Amendment No. 13, in page 157, line 12, at end insert—
'14. The duty on whole-year licences may be paid in four equal instalments at the election of the person liable for the duty, and the Treasury shall by regulation prescribe the dates and any other conditions on which the quarterly payments shall be paid.'.
Government amendments Nos. 14 to 16.

Mr. Bruce-Gardyne: The purpose of the amendments is to fulfil an undertaking that I gave in Committee, although not precisely in the form in which I gave it, for reasons that I shall explain. We are taking with this group of amendments amendment No. 13, in the name of the right hon. Member for Stepney and Poplar (Mr. Shore), and I shall comment on it at the same time.
We are dealing with gaming duties on one-arm bandits. As the House will be aware, in the Budget Statement my right hon. and learned Friend the Chancellor of the Exchequer proposed increases—in some instances substantial increases—in the rate of duty on so-called amusement with prizes machines and jackpot machines.


The case made to me in Committee by my hon. Friend the Member for Northampton, North (Mr. Marlow) and others was that when we had significantly increased the level of duty on those machines it would be desirable for an opportunity to be created for licensees to take out a quarterly licence instead of an annual or six-monthly licence. I told the Committee that, unfortunately, I did not think that we could accept that suggestion, because of the staffing costs involved. I was advised that it would take an additional 50 employees of Customs and Excise to cater for quarterly licences.
At the same time I undertook, between Committee and Report, to look at the suggestion made by the hon. Member for Blackburn (Mr. Straw) and my hon. Friend the Member for Croydon, South (Sir W. Clark) that, instead of going for quarterly licences, we should enable people who took out an annual licence to pay quarterly instalments. We have looked carefully at that proposal. That is the proposal that the right hon. Member for Stepney and Poplar puts forward in amendment No. 13. Therefore, it might be for the convenience of the House if I said a word about that at the same time.
Having looked at that proposition carefully, we have come to the conclusion that there are substantial difficulties in accepting it. They relate to the nature of the clubs where there is liable to be a regular turnover of officers at short intervals. That would create substantial problems for the Customs and Excise in chasing up licence payments due during the year. If we were to change to quarterly payments for an annual licence, in any case where payments were not received the Customs and Excise would be under an obligation to take proceedings against the club or pub which was still running such a machine, because it would be running it against the law. That, in turn, would create considerable complications.
3.15 am
To change to quarterly payments for an annual licence fee would, on our calculation, reduce the receipts from the duty in 1982–83 by between £15 million and £20 million. That is a loss of revenue that we are not prepared to accept in the current financial year. Therefore, we came to the conclusion that we could not accept the proposition.
However, I was advised by the Customs and Excise that on close inspection it felt that it could agree with the proposition put forward by my hon. Friend the Member for Northampton, North regarding quarterly licences. Bearing in mind that there would be a disproportionate charge, as suggested by my hon. Friend, for taking out a quarterly licence, that would obviously diminish the numbers wishing to take out quarterly licences.

Mr. Teddy Taylor: Is the Minister aware that in seaside towns, such as Southend, where we already take advantage of the six-monthly licence, we have a procedure whereby we get an extra month at either end? If he moved to quarterly licences, would that privilege, which is greatly welcomed in the seaside towns, be continued?

Mr. Bruce-Gardyne: I am glad that my hon. Friend raised that point. We thought that the amendment originally tabled in Committee by my hon. Friend the Member for Northampton, North did not go quite far enough, because it did not cover seaside licensees who, as my hon. Friend the Member for Southend, East (Mr. Taylor) said, under the present six-monthly arrangements, get an extra month gratis at either end. In our amendments

we shall ensure that the seaside licensee who takes out a three-month licence will get an extra month at the beginning or at the end, according to when the licence is taken out, so that provision is entirely protected.
I hope that my remarks go some way to meet some of the anxieties that were expressed in Committee. On that basis, I hope that the amendments will commend themselves to the House.

Mr. Straw: In Committee the Economic Secretary put up a very spirited rearguard action against the assault of his hon. Friend the Member for Northampton, North (Mr. Marlow) when we discussed the idea of quarterly licences. Therefore, it was with surprise and pleasure that we listened tonight to the Minister's announcement that, on reconsideration of the proposal, he has decided to look again at the administrative complications and to propose to the House that we should accept the change.
The proposal goes some way towards meeting the difficulties and objections that were raised to paying the substantially increased licence fees. The quarterly licence will help clubs, such as tennis clubs, which are open for only part of the year. It will also help clubs that eke out a living and can find the cash only for quarterly licences. However, it will not save the working men's clubs, which are open all year, and must now find licence fees, of between £300 and £750. Nor will it help firms, such as AFM Leisure Ltd in my constituency—[HON. MEMBERS: "Oh!"]—I explained my interest in this matter in Committee. I have no disclosable shareholding in AMF Leisure Ltd, nor in any other company in Blackburn or elsewhere. However, I am worried about a firm in Blackburn that has provided employment for some people and is worried about future employment prospects. The firm had to find £360,000 on 1 October to pay for the 1,200 licences for which it was responsible. We proposed quarterly licences to deal with those problems. We proposed licences that would not carry an additional premium because they were paid quarterly instead of annually, thus resulting in a loss of revenue.

Mr. Joseph Dean: My hon. Friend must be aware, as are most hon. Members who have working men's clubs in their constituencies, that many of them are threatened with closure because of increased costs. Will not any additional burden placed on them by the Government hasten the closure of many good clubs that should stay open?

Mr. Straw: I share my hon. Friend's anxiety. When we discussed this matter in Committee, there was great scepticism about the suggested take from the increased licence fees, because there is much evidence to suggest that pubs and clubs with two machines will downgrade to one, thus resulting in loss of revenue and some clubs having to close.
The reason why quarterly licences will not help clubs and pubs which wish to hold licences for a whole year is that it is more expensive, even allowing for the fact that a club paying a quarterly licence must borrow £90 each quarter, whereas a club that purchases an annual licence must borrow £300. That is why quarterly licences cost 20 per cent. more than annual licences. If we assume that a club borrows £300 to pay for a licence and repays it in equal instalments, the interest charge will be £24.38. If the club borrows £90 and pays it back over three months, the interest charge will be £9, but to that is added the £60


higher licence fee. The additional cost of purchasing four licences during the year as opposed to one at the beginning of the year is £45.62, assuming similar interest rates.
We welcome the proposals that the Economic Secretary has announced. They go some way to meet the anxieties expressed in Committee. I regret, however, that they do not help to meet the serious cash flow problems that clubs, pubs and hirers of these machines face. It is with regret that I find the Government unable to accept amendment No. 13.

Mr. Bruce-Gardyne: I accept that the quarterly licence provision that we offer is not as attractive to the club or pub that operates machines all the year round as the suggested quarterly payment of the annual licence fee would have been. Unfortunately, for the reasons I have explained, we cannot accept that proposition enshrined in amendment No. 13.

Mr. John Gorst: I have an interest to declare as an adviser to this industry. Does not the manner in which my hon. Friend has made this change show that this is an iniquitous duty and tax that is too expensive to collect?

Mr. Bruce-Gardyne: The answer is "No". If that was the case, I would agree that we should abandon the tax. I am not saying that it is not relatively expensive to collect. It is. However, it is still a substantial revenue earner and a provider of revenue than the Government cannot at this time forgo.
The availability of quarterly licences will be of some assistance to those clubs and pubs, even those operating all the year round, which perhaps face the greatest difficulty on meeting the inccreased licence fee for an annual licence. I accept that this does not give the concession sought by the hon. Member for Blackburn (Mr. Straw) in amendment No. 13. That amendment cannot be accepted for revenue and other reasons. I hope that, against this background, the House will feel that the amendments I have put forward go some way to meet the anxieties of the interested bodies.

Amendment agreed to.

Mr. Cook: I beg to move amendment No. 7, in page 155, line 47, leave out '£300' and insert '£200'.

Mr. Deputy Speaker: With this it will be convenient to take the following amendments: No. 8, in page 156, line 5, leave out '£300' and insert '£250'.
No. 9, in page 156, line 6, leave out '£750' and insert '£500'
No. 11, in page 156, line 6, at end insert—

TABLE C


Premises registered under part III of the Gaming Act 1968


Description of machines authorised by the licensee
Duty on whole-year licence


Chargeable at the lower rate.
£200 per machine.


Chargeable at the higher rate.
£400 per machine.

Mr. Cook: We turn now to a group of amendments upon which the tedium was broken in Committee by the drama of a tied vote. I pay tribute to the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) for having the courage of his convictions on that occasion. The tied vote also depended upon the abstention of the hon.

Member for Northampton, North (Mr. Marlow), who is unfortunately unable to be present tonight. I understand that he has been despatched to the Middle East where his talents for diplomacy and subtlety will no doubt be stretched to the full.
Nevertheless, the Opposition felt it right that the whole House should have the opportunity to condescend on amendments that plainly had resulted in divided counsel across party and Committee. I welcome the fact that the House should be so full of hon. Members interested in the matter. I welcome especially to our deliberations my right hon. Friend the Opposition Chief Whip who has, I understand, a considerable constituency interest in this matter. The debate raises matters of considerable concern both to the industry and the clubs that hire the jackpot machines.
Nowhere can be found a more stark contrast between the effrontery of the Government in running an election campaign on a promise to cut taxation and the reality of their record since obtaining office on that fraudulent premise in remorselessly pushing up taxation.
In 1980, the Government restructured the duty on gaming machines and in 1981 they increased the rate of duty by 50 per cent. following the failure to obtain petrol duty rises. They followed that second successive increase in gaming duty by issuing a paper on ad valorem duty which resulted in a number of statements which the Economic Secretary declined to publish on the ground that
the evidence contained comments that were clearly not intended for publication.
One can only assume that some of the clubs that submitted evidence to the review, having already been faced with two increases, and faced with the proposal for a much more substantial increase, submitted comments that were clearly not fit for publication.
3.30 am
Nevertheless, despite that poor response, we are now faced with a third set of increases in gaming machine duty in three years. If these increases are approved, they will result in more than a doubling of the present rate of duties on the gaming machines, for which there can be no possible justification either in justice to the clubs or to the industry, and which is based on any reasonable assessment of what this type of activity would bear by way of taxation.
As the Tories ran the last election campaign on the basis that the good people of Britain were groaning under the onerous taxation fastened upon them by the iniquitous Labour Government, it is perhaps relevant to contrast the record of the Labour Government in this matter with that of the present Government. If we do so, we find that only once did the Labour Government alter gaming machine duty. They did so in 1975, when they reduced the duty to make a compensating allowance for the increase in VAT which flowed from a decision of a previous Conservative Government. Nowhere can we see clearer contrast between what happened under the previous Labour Government and the falsity of the policies of the Tory Party and the reality of its record in office.

Mr. Gorst: While the hon. Gentleman is going into records, perhaps I can remind him that a Labour Government first introduced the duty.

Mr. Cook: I am sure that the House is obliged to the hon. Gentleman for putting the record straight. He will, however, concede that no Labour Government, or, to be


fair, any previous Government, even a Tory one, would even dream of introducing the levels being proposed by the Government. I was intrigued to learn that the hon. Member for Hendon, North (Mr. Gorst) purports to be a consultant to the industry. We shall divide on the amendments and I hope that the hon. Gentleman, as a consultant, will join us in the Lobby to defend the industry from the swingeing increases proposed by his Government.
Let me point out to the hon. Gentleman the exact figures. When his Government came to power, the highest rate of charging on amusement and prize machines in pubs was £100. If this clause goes through unamended, the highest rate of duty will be £300—a threefold increase in three years. The highest rate for jackpot machines when his Government came to power was £200. If this new clause goes through unamended, the highest rate will be £750. If the clause goes through unamended and supported by the hon. Gentleman, the industry will be well advised to look for another consultant because, plainly, his efforts to persuade his right hon. and hon. Friends on the Treasury Bench in the past three years has not met with marked success. Who will bear the burden of these swingeing increases? Primarily it will be the clubs. They are not mainly gaming clubs. Only 5,000 jackpot machines are in gaming clubs or bingo clubs. However, 37,000 jackpot machines are in members' clubs.
Those members' clubs fall mainly into two categories. First, there are the working men's clubs, which provide an important social function. They are often the only social facility in a small local community. They frequently offer a provision which otherwise would have to be made by local authorities by way of a community centre or another more expensive way of meeting the community provision. Secondly, there are the sports clubs. They sustain a form of sport which should have the wholehearted support of every hon. Member. They frequently receive a grant from the Sports Council to carry out that provision. We are now proposing to make it more difficult for them, through their own efforts and revenue, to support that sports undertaking by taxing the revenue that they seek to raise to support their sports activity.
The amendments that we propose provide for a reasonable increase—indeed, they provide for a substantial increase. We do not deny that the turnover involved is within the scope of duty and it is one which could possibly bear a larger increase, bearing in mind this Government's urgent need for revenue. We accept that the Government, having created a recession, have to pay for it. We do not stand in the way of a reasonable requirement for additional revenue. However, the Bill proposes an increase which would more than double the present rates of duty which themselves were increased by 50 per cent. only last year. In our opinion, such an increase is too much. If the Government need that revenue, they should look again at some of the other clauses in the Bill—possibly those on capital transfer tax, or possibly the clauses on the higher rate bands, where there have been reductions instead of increases in taxation.
If the Government were to persist in increases on the scale proposed, they would be imposing a duty which was vindictive, because the clubs and pubs that have the machines would be singled out for such a savage increase, unfair, because the burden would fall most heavily on the smallest clubs with the lowest turnover at the jackpots, and

perverse, because it would make it more difficult for local communities, out of their own resources, to sustain important social facilities.
For all those reasons, if the Economic Secretary persists with the proposed levels of duty which we find offensive, we shall vote to reduce them.

Mr. Golding: My right hon. Friend the Member for Wakefield (Mr. Harrison) is up to his old tricks in trying to intimidate me into brevity, because the hour is late. However, I want to put the point of view of the clubs.
I declare an interest. I am a member of Parksite and Elmer End working men's clubs in my constituency, and I visit many others. Since the general election, I have noticed that they are facing increasing difficulties. The difficulties pile up as family incomes in North Staffordshire crumble. The House does not full appreciate the way in which the incomes of working-class families have been affected by the recession in industrial areas such as mine. Apart from massive redundancies—in North Staffordshire, in pottery alone, the redundancy figures are 30,000 to 40,000—loss of overtime working has had a big impact. We are faced with short-time working. Moreover, wages have not kept up with increases in the cost of living. As a result, family incomes have slumped, and that slump has had a grave effect on small businesses in the locality, and a devasting effect on some of the working men's clubs.
The clubs are vital. They provide family entertainment for which their members pay. That cannot be said of people who attend the ballet, opera and classical concerts, or who support the arts in general because they are subsidised by the taxpayer. The incomes of working people who support the clubs have been affected badly by the recession.
Clubs provide more than entertainment. In my area they are philanthropic organisations, helping to care for old, disabled and young people. I cannot over-emphasise the contribution that the clubs make to the community. How do the clubs finance their good work? Annual subscriptions are small, so they are financed by gambling—a form of private taxation. They are financed by bingo, raffles and, most important, one-armed bandits. Clubs are dependent on the levy on gambling. I oppose any increase in that duty because of the severe financial difficulties experienced by the clubs.

Mr. Joseph Dean: Is my hon. Friend aware that without the income from gambling machines, bingo and raffles, 90 per cent. of working men's clubs would close their doors tomorrow because they can no longer exist on bar takings?

Mr. Golding: I agree. If the State increases taxation, clubs will be in even greater difficulty. That would be a great shame. Before taking such a decision, the Government should study the financial structure of the clubs and make an assessment of their social value. If they did that they would not impose an additional burden.

Mr. John Evans: I support the amendments. I declare an interest. I am the newly elected political secretary of the National Union of Labour and Socialist Clubs. For 30 years I have been a member of the Club and Institute Union, so I have a broad experience of working men's and political clubs.
The opposition to the proposed increase in duty comes not only from working men's and Labour clubs but from


Conservative clubs, the members of which are disturbed about the proposed increase in duty on gaming machines. I reinforce the comments of my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) about the appalling difficulties that many working men's clubs face now. Conservative Members may never enter a working men's club so may I impress upon them the appalling difficulties that such clubs are facing? Many clubs are abandoning the afternoon sessions. Some are abandoning certain evening sessions and one or two are even talking of closing altogether. The Royal British Legion Club at Caddishead in my constituency, which used to be the most prosperous club in the community and has contributed to every charity that the community has run over the past 40 to 50 years, is now facing serious financial difficulty. It has appealed to the entire community to turn to its assistance. That is a measure of the many problems that working men's clubs and political clubs are now facing.
3.45 am
As my hon. Friend said, as the recession bites ever deeper, particularly in the North of England where the great strength of the working men's club movement exists, it is self-evident that the clubs are bound to get into great difficulties. It is right that we should consider, even at 3.45 am, the activities that working men's clubs contribute to the towns, villages and societies of our areas.
My hon. Friend mentioned many of the facilities that are offered such as the community, bingo and concert facilities that are greatly appreciated. The vast majority of clubs also offer considerable facilities for young people. These are needed even more now with so many unemployed youngsters. Most clubs these days are throwing their doors open in the early evening and afternoons to make their sports rooms and billiard tables available for youngsters to have something to do during the day. Staff have to be employed to look after the youngsters in the club and they have to be paid. The profits that accrue to the club from the one-armed bandits are necessary to finance such facilities.
Any club will confirm that its income has reduced considerably in the past one to two years. If the number of members of and visitors to the clubs decline, or go in later in the evening, the club's income from one-armed bandits is reduced and the amount of money that is available to finance the tremendous social activities of such clubs is also reduced. To increase the duty on one-armed bandits at the same time only forces more and more clubs nearer the point of bankruptcy. If clubs are forced into bankruptcy it means that a way of life in many villages and small towns, particularly in the North of England, will pass away.
It is essential that the Minister thinks again about what he is doing. I assure him that I intend to make it clear to the many thousands of club members in my constituency what the Tory Government have done in the past and intend to do in future to bring their clubs nearer to the point of closure. There is little love for the Tory Government in the vast majority of working men's clubs in my constituency at present. I assure the Minister that I intend to add to the feeling that already exists against his Government. I also intend to ensure that the Conservative clubs in my constituency are well aware of what the Treasury is up to.

Mr. Joseph Dean: I rise briefly to support my hon. Friend the Member for Newton (Mr. Evans). Before becoming a Member of the House I was the secretary of a large club. I had 20 years' experience. Over the years a dramatic change has taken place in the functions of such clubs and the way in which they are run. It was interesting to hear the Minister refer to the difficulties that the staff of the Inland Revenue would experience. However, successive Governments enact legislation without showing any concern for the club officials who have to carry it out.
During my time secretaries and treasurers of working men's clubs became some of the finest unpaid tax collectors for the Treasury. Without any sympathy, more demands were made on their time and matters became more complicated, although no thanks were given. Often, there were penal sanctions if they were not carried out to the letter. As both I and my hon. Friend the Member for Newton have said, the whole basis of financing such clubs has changed. In the 1950s clubs could survive on their bar sales. However, that is no longer true. Even the breweries are screaming. People are not buying as much beer as previously. In their avaricious way, the breweries put 4p, 5p and even 10p on a pint of beer and still expected people to pay it during the biggest slump for 50 years.
In addition, clubs are finding it increasingly difficult to meet the rate increases imposed by both Labour and Conservative-controlled authorities. In my constituency, clubs with household names and a tremendous history have closed in the past few weeks. They were the social centres for the area, catering for everyone from the young to the old. The increased financial burdens will hit the extras provided by the clubs. I refer to parties for the old at Christmas and trips for the kiddies.
The Government should consider the issue more sympathetically before embarking on such an exercise. If the clubs go out of existence, it will be to the detriment of their communities, and they will never be replaced.

Mr. Allen McKay: I wish to make a brief speech in support of my hon. Friends. In my constituency, the working men's clubs are very important. Although 160 square miles of the constituency are very rural, the constituency also has steel, coal and engineering. Local life centres round the working men's clubs, and has done for generations.
In my area, when a lad was 18 he automatically became a member of the club. He went to see the chairman of the committee and the committee, who told him to be a good lad, not to drink and to keep out of the games room until he was about 21. In the past week one club in my area has had to close with considerable debts. It just could not survive on the bar takings, or even on its one-armed bandit. As the number of unemployed has increased, the money that used to be spent on that is no longer available. Those clubs are the very essence of that society. They create a focal point.
The clubs have a tremendous liaison with the schools in their areas. Some of my local schools have had their first football strips from the working mens' clubs. The schools have worked in return to help the clubs. In most areas the club has the biggest hall in the village. There is probably no other place that will hold so many people. Weddings,


funerals, dancing classes, fruit and vegetable shows and flower shows are held in the clubs. Village life is centred on the club. The clubs openly obtain their money from gaming machines.
The clubs are worried about this measure. Secretaries and committees work long hours over many years. Club secretaries do not change as often as the Economic Secretary believes. Once someone becomes a club secretary he can hold that position for 25 or 30 years. They are becoming extremely concerned about club finances. Beer, spirits, cigarettes and everything else the clubs sell has risen in price. Although they make a modest profit from such sales, it cannot sustain the life of the club. Beer sales are in fact dropping and I am sure that the breweries are becoming worried.
I plead with the Government to think seriously about what they are doing. Village life is being ruined by the Government. There are fewer transport facilities and people depend on the clubs for entertainment because the Government have taken the buses away. Everything that the Governmet do hits the people of my constituency. I ask the Government to think again and to withdraw this proposal.

Mr. Bruce-Gardyne: We have had a useful debate about these amendments. I fully understand the strength of feeling that has been expresed. The four amendments taken together—as they presumably would be—would involve a general lowering of the duty rates proposed by the Chancellor in his Budget speech. They would absolve the so-called registered clubs—the non-profit-making clubs—from any increase in duty. The four amendments taken together would involve the loss of two-thirds of the additional £20 million a year that the Chancellor seeks to obtain from these Budget proposals. These amendments are not attractive to the Government because of the loss of revenue. That is not the only problem that they raise. Taken together, the amendments would upset the balance betweeen the taxation of amusement-with-prizes machines and the jackpot machines, and between the 5p and 10p machines in each category. The average annual takings of a 10p amusement-with-prizes machine are estimated to be as at least £3,000. The average annual takings of a jackpot machine are estimated to be at least £7,500. The Budget proposals fixed the rate of duty on those machines at 10 per cent. of the average takings. That was the basis for those proposals. At the same time, the rates for 5p machines were set at 40 per cent. of those for the corresponding 10p machines. This was designed to help seaside arcades and others and to provide an opportunity for small pubs and clubs currently using 10p machines to trade down.
4 am
I readily accept, as I conceded to my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) in Committee, that there is a substantial difference between the take of some of the smaller clubs, arcades and pubs and that of the large social clubs, but the only duty structure that would reflect that distinction would be an ad valorem system. In the review that we undertook before the Budget, that was the one system that all the clubs and pubs unanimously rejected. Once that is ruled out, however, disparities of this kind are to some extent inevitable.
The effect of the amendments would be to introduce a significant differentiation between the pubs and the clubs. I do not dispute the fact that the clubs are non-profit-making operations and use the proceeds from gaming machines and other forms of income for various community activities, but all the evidence that we received suggests that the yield from the gaming machine is just as important to the pub, which also plays an important part in community life. If the amendments were accepted, all hell would be let loose from the pubs, which would regard themselves as being grotesquely mistreated and discriminated against.

Mr. Allen McKay: The obvious solution is to make the pubs exactly like the clubs and give them jackpot machines, but the Home Secretary will not agree to that.

Mr. Bruce-Gardyne: The hon. Gentleman will have to pursue that with the Home Office. I cannot answer for it now or at any other time and I should be in trouble if I did.

Mr. Joseph Dean: Is the Minister saying that gaming machines in pubs should be used to supplement the profits of the breweries that run the pubs?

Mr. Bruce-Gardyne: Our evidence shows that for some of the smaller pubs the income from the gaming machines is an important factor in their continuing viability. I assure the House that if the amendments were accepted the situation would be regarded as grossly unfair by the pubs.

Mr. Michael Cocks: The Minister is defending the breweries.

Mr. Bruce-Gardyne: It would be regarded as unfair not only by the breweries but by those who use the pubs.

Mr. Cook: I invite the Economic Secretary to bend his mind to amendments Nos. 7, 8 and 9. If he will accept those amendments, which were pressed to Divisions in Committee, we should be happy to drop amendment No. 11.
Amendment No. 7, referring to the higher rate of duty on machines in pubs, makes a reduction of one-third, from £300 to £200. In Amendment No. 9, referring to the higher rate of duty on machines in clubs, the reduction is from £750 to £500. Again, that is exactly one-third. The two amendments taken together thus propose identical reductions for machines in pubs and in clubs, so they would in no way upset the arithmetical relationship between them created by the Government's own tables.

Mr. Bruce-Gardyne: I agree that the main discrimination would emerge from amendment No. 11. I have already explained to the hon. Member for Edinburgh, Central (Mr. Cook) that that is not the only objection to the amendments. I have made that clear. There is also the revenue that we are not prepared to forgo and the structure of the duty.
I wish to add a final point on the differentiation between the clubs and the pubs. We understand the contribution


that the clubs can make, as a result of the use to which they put their revenues, to charitable purposes in their communities. However, it has never been a concept of our taxation system that the clubs should not be expected to pay indirect taxes. There is no good reason for introducing a differentiation along these lines, and certainly not along the lines suggested by amendment No. 11. Therefore I must tell the House that, while I entirely understand the strength of feeling that the issue arouses, I cannot accept the amendments.

Amendment negatived.

Amendment proposed: No. 8, in page 156, line 5, leave out '£300' and insert '£250'.—[Mr. Shore.]

Question put, That the amendment be made:—

The House divided: Ayes 33, Noes 103.

Division No. 267]
[4.10 am


AYES


Booth, Rt Hon Albert
Hooley, Frank


Campbell-Savours, Dale
McCartney, Hugh


Cocks, Rt Hon M. (B'stol S)
McWilliam, John


Concannon, Rt Hon J. D.
Mitchell, Austin (Grimsby)


Cook, Robin F.
Ross, Ernest (Dundee West)


Cryer, Bob
Sheerman, Barry


Cunliffe, Lawrence
Sheldon, Rt Hon R.


Davis, Terry (B'ham, Stechf'd)
Shore, Rt Hon Peter


Dean, Joseph (Leeds West)
Skinner, Dennis


Dixon, Donald
Soley, Clive


Dormand, Jack
Spearing, Nigel


Eadie, Alex
Straw, Jack


Edwards, R. (W'hampt'n S E)
Urwin, Rt Hon Tom


Evans, John (Newton)
Welsh, Michael


Foster, Derek



Golding, John
Tellers for the Ayes:


Hardy, Peter
Mr. Allen McKay and


Harrison, Rt Hon Walter
Mr. George Morton.


Haynes, Frank



NOES


Alexander, Richard
Gummer, John Selwyn


Aspinwall, Jack
Hamilton, Hon A.


Atkinson, David (B'm'th,E)
Hamilton, Michael (Salisbury)


Baker, Nicholas (N Dorset)
Hawksley, Warren


Banks, Robert
Heddle, John


Bennett, Sir Frederic (T'bay)
Hogg, Hon Douglas (Gr'th'm)


Benyon, Thomas (A'don)
Hordern, Peter


Berry, Hon Anthony
Hunt, David (Wirral)


Bevan, David Gilroy
Jessel, Toby


Biffen, Rt Hon John
Jopling, Rt Hon Michael


Blackburn, John
Lang, Ian


Blaker, Peter
Lester, Jim (Beeston)


Bottomley, Peter (W'wich W)
Lloyd, Peter (Fareham)


Bowden, Andrew
Loveridge, John


Bright, Graham
Lyell, Nicholas


Brinton, Tim
MacGregor, John


Brittan, Rt. Hon. Leon
Major, John


Bruce-Gardyne, John
Marland, Paul


Butcher, John
Mather, Carol


Cadbury, Jocelyn
Maude, Rt Hon Sir Angus


Carlisle, John (Luton West)
Maxwell-Hyslop, Robin


Carlisle, Kenneth (Lincoln)
Mayhew, Patrick


Channon, Rt. Hon. Paul
Mellor, David


Clark, Hon A. (Plym'th, S'n)
Mills, Iain (Meriden)


Cockeram, Eric
Mitchell, David (Basingstoke)


Cope, John
Moate, Roger


Crouch, David
Moore, John


Dorrell, Stephen
Murphy, Christopher


Dover, Denshore
Myles, David


Eyre, Reginald
Needham, Richard


Faith, Mrs Sheila
Nelson, Anthony


Fenner, Mrs Peggy
Newton, Tony


Forman, Nigel
Normanton, Tom


Garel-Jones, Tristan
Osborn, John


Goodlad, Alastair
Page, Richard (SW Herts)


Griffiths, Peter Portsm'th N)
Parris, Matthew





Patten, John (Oxford)
Stradling Thomas, J.


Rees, Peter (Dover and Deal)
Taylor, Teddy (S'end E)


Rhodes James, Robert
Thompson, Donald


Rhys Williams, Sir Brandon
van Straubenzee, Sir W.


Ridley, Hon Nicholas
Waddington, David


Ridsdale, Sir Julian
Wakeham, John


Rossi, Hugh
Waldegrave, Hon William


Rumbold, Mrs A. C. R.
Waller, Gary


Sainsbury, Hon Timothy
Warren, Kenneth


Shepherd, Colin (Hereford)
Watson, John


Silvester, Fred
Wells, Bowen


Smith, Dudley
Wells, John (Maidstone)


Smith, Tim (Beaconsfield)
Wickenden, Keith


Speller, Tony



Squire, Robin
Tellers for the Noes:


Stanley, John
Mr. Robert Boscawen and


Stevens, Martin
Mr. Peter Brooke.


Stewart, Ian (Hitchin)

Question accordingly negatived.

Amendments made: No. 10, in page 156, line 6, at end insert—
'9A. In subsection (2) of section 23 (rate of duty for half-year licence) after the word "eleven-twentieths" there shall be inserted the words", and on a quarter-year licence six-twentieths,".'.

No. 12, in page 157, line 7, at end insert—
'12A. In paragraph 4 of Schedule 4 to the 1981 Act (licences not required for March or October in certain cases) for the words from "during March or October" to the end there shall be substituted the words "which have local authority approval under the Gambling Acts—

(a) during March of any year if the provision of the machine on the premises during April of that year has been authorised by a half-year licence or a quarter-year licence;
(b) during October of any year if the provision of the machine on the premises during September of that year has been authorised by a half-year licence or a quarter-year licence.".
12B. At the end of sub-paragraph (3) of paragraph 7 of Schedule 4 to the 1981 Act (expiry of licences) there shall be added the words "and a quarter-year licence shall expire at the end of 31st March, 30th June, 30th September or 31st December, as the case may be, after the date on which it is expressed to take effect.".'.

No. 14, in page 157, line 13, at end insert—
'13A. At the end of subsection (3) of section 43 of the 1972 Act (duration of licences) there shall be added the words "or a quarter-year licence for any period of three months beginning on 1st January, 1st April, 1st July or 1st October.".'.

No. 15, in page 157, line 31, at end insert—
'(3A) In subsection (5) of that section (rate of duty for half-year licences) after the words "eleven-twentieths" there shall be inserted the words", and on a quarter-year licence six-twentieths,".'.

No. 16, in page 158, line 10, at end insert—
'16A. At the end of sub-paragraph (2) of paragraph 9 of Schedule 3 to the 1972 Act (expiry of licences) there shall be added the words "and a quarter-year licence shall expire at the end of 31st March, 30th June, 30th September or 31st December, as the case may be, after the date on which it is expressed to take effect.".'.—[Mr. Bruce-Gardyne.]

Clause 9

IMMATURE SPIRITS FOR HOME USE AND LOSS ALLOWANCE FOR IMPORTED BEER

Mr. Bruce-Gardyne: I beg to move amendment No. 17, in page 12, leave out lines 12 to 31 and insert—

'(1) The Treasury may by order—

(a) substitute for the period of three years or that of two years referred to in subsection (1) of section 31 of the Alcoholic Liquor Duties Act 1979 (restriction on delivery of immature spirits for home use) or for both such periods such shorter period or periods as they think fit;


(b) amend the said section 31 so as to exempt rum from any restriction imposed by that subsection; and
(c) repeal the said section 31.

(2) An order under subsection (1) above shall be made by statutory instrument which shall be laid before the Commons House of Parliament and shall cease to have effect at the end of the period of twenty-eight days beginning with the day on which it was made unless it is approved by resolution of the Commons House of Parliament before the end of that period (but without prejudice to anything previously done in pursuance of the order or to the making of a new order).

In reckoning that period no account shall be taken of any time during which Parliament is dissolved or prorogued or during which the Commons House of Parliament is adjourned for more than four days.'.
The purpose of the amendment is to give effect to an undertaking which I gave to my hon. Friend the Member for Moray and Nairn (Mr. Pollock) in Committee that I would introduce an amendment designed to achieve the purpose of that intended by the amendment introduced by my hon. Friend in Committee and remove from the Bill the original clause 8, which would have phased out the three-year immature spirits rule applying to whisky and cognac and the two-year immature rule applying to rum and replaced it with delegated legislation. I undertook to introduce on Report an amendment to achieve that purpose and that is precisely what the amendment is designed to do. It meets the anxieties of the Scotch whisky industry about the immediate phasing out of the immature spirits rules, which have been in existence since the First World War.
I have given further thought since our proceedings in Committee to the position of one other interest which was not discussed. I refer to the rum producers. The existing provisions regarding the restrictions on rum are different from those for spirits generally in that there is a two-year so-called maturation period as against a three-year period for spirits generally. In consultations, the United Kingdom rum importing interests strongly supported the idea of a phased repeal of the restrictions. They have since made representations to me that their case was not represented in Committee and that it is a matter of great importance to them that the restrictions on them should be phased out.
Therefore, it is the Government's intention to recognise those representations by using the powers contained in the amendment to phase out the restrictions on rum alone in a manner akin to that originally proposed in the Finance Bill, when the Bill receives Royal Assent. That will have no effect on the position regarding other spirits.
The timing of the phasing out of the restrictions will be a matter for consultation with the rum interests. The firm intention is to lay an appropriate order before the House as soon as practicable in the next Session. The House will have an opportunity to discuss the content of the order as it will require an affirmative resolution. On that basis, I hope that the House will accept the amendment.

Mr. Cook: The Economic Secretary explained that the amendment was tabled in response to an amendment tabled in Committee by the hon. Member for Moray and Nairn (Mr. Pollock). As the Economic Secretary will recollect, an amendment tabled by the Opposition went further. I would not describe it as a wrecking amendment because if it had been it would not have been selected. However, it tried to preserve the Scotch whisky industry and other distillers in the United Kingdom from the removal of what provides modest protection to home-produced spirits.
We recognise that because of EEC constraints the Economic Secretary could not accede fully to the terms of our amendment. We accept his adoption of the amendment tabled by the hon. Member for Moray and Nairn, which was originally suggested by the Scotch whisky group as the fall-back position. It is the best that we can hope for in the circumstances. Therefore, we accept, albeit reluctantly, this modest concession towards our anxieties.
In relation to any order that would phase out the period of three years' maturation for spirits other than rum, we would not be keen to see that order brought before the House. We hope that the Economic Secretary will not strive officiously to introduce one in the immediate future. If he does, it is liable to meet with opposition, not simply from the Opposition but possibly from the Government Benches. I hope that that consideration will help to temper his enthusiasm for bringing in such an order.

Amendment agreed to.

Clause 13

REGISTRATION

Mr. Bruce-Gardyne: I beg to move amendment No. 18, in page 15, leave out lines 21 to 38.

Mr. Deputy Speaker: With this it will be convenient to take Government amendment No. 19.

Mr. Bruce-Gardyne: The purpose of the amendment is to give effect to an undertaking that I gave to my hon. Friend the Member for Croydon, South (Sir W. Clark) in Committee.
The Bill as originally drafted contained provisions emanating from a Rayner scrutiny by which Customs and Excise would have been given the power under certain circumstances, with which I shall not weary the House at this hour, to refuse registration to traders with relatively small turnovers, who were seeking registration. We have had representations from a number of sources, particularly from my hon. Friend, to the effect that it was more satisfactory to revert to a position whereby the Customs and Excise had discretion as to when registration below the registration threshold should be granted or withheld, although the trader would always have the right of appeal in the normal way.
On balance, it seemed that that was a more sensible way of proceeding. I undertook, therefore, to amend the Bill accordingly.

Amendment agreed to.

Amendment made: No. 19, in page 16, leave out lines 9 and 10.—Mr. David Hunt.]

Clause 25

DEDUCTION OF TAX FROM CERTAIN LOAN INTEREST

Mr. Ridley: I beg to move amendment No. 20, in page 22, line 33, at end add
'and, accordingly, no sum shall be so deducted in computing the profits or gains to be charged under Case VI of that Schedule.'.
The amendment, the other amendment to clause 25, and the amendments to clause 27 and schedule 7, up to and including amendment No. 52 on the Amendment Paper, are either drafting amendments or so minor and technical, that I commend them to the House without debate. They involve no changes in tax levels and no changes in


revenue. They involve no additions to or deletions from the rights of taxpayers, lenders or borrowers. Therefore, I hope that the House will agree to take them formally.

Amendment agreed to.

Amendment made: No. 160, in page 22, line 33, at end add—
'(9) In the Finance Act 1976—

(a) in section 66 (taxation of benefit of employment linked loans) at the end of sub-section (8) there shall be added the words "or which would be so eligible apart from section 25 of the Finance Act 1982"; and
(b) in paragraph 8 of Schedule 8 (provisions supplementary to section 66) the following sub-paragraph shall be substituted for sub-paragraph (1)—

(1) Interest is eligible for relief for the purpose of this Part of this Schedule if it is eligible for relief under section 75 of the Finance Act 1972 or would be eligible for such relief apart from section 25 of the Finance Act 1982.".'.—[Mr. Brittan.]

Schedule 7

DEDUCTION OF TAX FROM CERTAIN LOAN INTEREST

Amendments made: No. 21, in page 159, line 6, leave out from first 'which' to 'is'.

No. 22, in page 159, line 28, after '(4)', insert 'or sub-paragraph (5)'.

No. 23, in page 159, line 30, after 'which', insert
'becomes due on or after 1st April 1983 and'.

No. 24, in page 159, line 48, leave out from 'authority' to end of line 4 on page 160 and insert—
'(5) If an application in that behalf is made to the Board by a qualifying lender, sub-paragraph (2) above applies to interest which becomes due on or after such date as may be specified by the Board for the purposes of that sub-paragraph (instead of 6th April 1983).
(6) The Board shall not under sub-paragraph (5) above specify a date earlier than 1st April 1983 or later than 5th April 1983 and the Board shall notify the qualifying lender concerned of the date specified under that sub-paragraph.'.

No. 25, in page 160, line 4, at end insert—
'(4A) Sub-paragraph (2) above does not apply to interest payable on a loan the only security for which is a contract of insurance on human life or a contract to pay an annuity on human life.'

No. 26, in page 160, line 9, leave out 'or sub-paragraph (3)(b)'.

No. 27, in page 160, line 13, leave out from '"used"' to end of line 14 and insert
', where it first occurs, there were inserted the words "wholly or to a substantial extent";

No. 28, in page 160, line 17, leave out from beginning to 'in'.

No. 29, in page 160, line 22, leave out '"either"' and insert
'"used" (where it first occurs)'.

No. 30, in page 160, leave out line 26 and insert
'relates—
(a) is at the time the interest is paid used wholly or partly"; and paragraph (b) and the word "or" immediately preceding it were omitted; and'.

No. 31, in page 161, line 15, after 'authority', insert
'or the Northern Ireland Housing Executive'.

No. 32, in page 161, line 16, leave out from beginning to 'the' in line 17.

No. 33, in page 161, line 20, after 'lender', insert
'and which were made after such date as he may specify in the notice'.

No. 34, in page 161, line 20, at end insert—

'(1A) A qualifying lender may not specify a date in a notice under sub-paragraph (1) above which is earlier than the earliest date on which paragraph 2 above applies to interest on any loan (whether or not a home improvement loan) made by him.'.

No. 35, in page 161, line 40, leave out from 'have' to 'brought' in line 41 and insert
'limited loans of a description which includes that limited loan'.

No. 36, in page 162, line 34, leave out from 'that' to second 'the'.

No. 37, in page 163, line 6, leave out from 'is' to end and insert
'a date specified in the notice as being the relevant date (which may be earlier than the date so specified as the date from which the interest may be paid under deduction of tax).'.

No. 38, in page 163, line 10, after '(4)' insert 'or sub-paragraph (5)'.

No. 39, in page 163, line 11, leave out 'any reference in sub-paragraph (1)' and insert
'the reference in sub-paragraph (1)(d)'.

No. 40, in page 163, line 12, at end insert—
'(5) In the case of relevant loan interest—

(a) which fall within sub-paragraph (2) of paragraph 2 above, and
(b) to which sub-paragraph (5) of that paragrph applies,

for the reference in sub-paragraph (1)(d) above to 1st April 1983 there shall be substituted a reference to the date specified by the Board and notified under sub-paragraph (6) of paragraph 2 to the qualifying lender to whom the interest is payable.'.

No. 41, in page 164, line 10, after 'interest', insert
`or that a qualifying borrower has or may have ceased to be a qualifying borrower'.

No. 42, in page 164, line 12, at end add
`or, as the case may be, that the borrower has or may have ceased to be a qualifying borrower.'.

No. 43, in page 164, leave out lines 22 to 26 and insert—

(b) the relevant date specified in the notice is earlier than the date from which the interest begins to be paid under deduction of tax, and
(c) a payment of that interest was made on or after the relevant date but not under deduction of tax'.

No. 44, in page 164, line 29, leave out from 'if' to end of line 30 and insert
'it had been made after the relevant date.'.

No. 45, in page 165, line 23, at end add—
'( ) the Bank of England
( ) the Post Office;'.

No. 46, in page 165, line 30, after 'registered', insert 'friendly'.

No 173, in page 165, leave out lines 37 and 38.

No. 47, in page 166, line 4, at end add
`or of a company within paragraph (c) above'.

No. 48, in page 166, line 6, after 'Schedule', insert
'generally or in relation to any specified description of loan'.

No. 49, in page 166, line 9, after 'sub-paragraph', insert
'generally or, as the case may be, in relation to such description of loan as is specified in the order'.—[Mr. Brittan.]

Clause 27

SUPPLEMENTARY REGULATIONS

Amendments made: No. 50, in page 23, line 42, leave out 'section 25' and insert
'sections 25 and (Variation of terms of repayment of certain loans)'.

No. 51, in page 24, line 13, leave out 'section 25' and insert
`sections 25 and (Variation of terms of repayment of certain loans)'.

No. 52, in page 24, line 16, leave out 'or expedient'.

No. 53, in page 24, line 19, after '25', insert


`or section (Variation of terms of repayment of certain loans)'.

No. 54, in page 24, line 22, leave out 'section 25' and insert
`sections 25 and (Variation of terms of repayment of certain loans)'.

No. 55, in page 24, line 35, leave out 'section 25' and insert
`sections 25 and (Variation of terms of repayment of certain loans)'.—[Mr. Brittan.]

Clause 30

SOCIAL SECURITY BENEFITS

Mr. Brittan: I beg to move amendment No. 158, in page 26, line 26, leave out from beginning to 'there' in line 27 and insert—
`(c) in subsection (5) (relevant amounts) the following paragraph shall be substituted for paragraph (a)—
(a) in a case where the supplementary allowance is paid to a person—

(i) to whom subsection (3)(a) above applies and he is for the purpose of the said Act of 1976 one of a married or unmarried couple the other one of whom is within section 8 of that Act and the said paragraph 10 applies to him, or
(ii) to whom subsection (3)(b) above applies, to the amount specified in the said paragraph 10;";

and at the end of that subsection'.
The amendment is a minor relieving alteration to the provisions in the Finance Act 1981, bringing into tax supplementary benefit paid to the unemployed and to strikers. It is to correct an error that crept in, and it is the relieving character that the amendment seeks to provide.
I shall he happy to give assistance to the House, if necessary, in explaining the amendment in greater detail. I commend it to the House.

Amendment agreed to.

Further consideration adjourned.—[Mr. Brittan.]

Bill (as amended in the Committee, and as amended in the Standing Committee), to be further considered this day.

Coal Industry (Grants)

The Under-Secretary of State for Energy (Mr. John Moore): I beg to move,
That the draft Coal Industry (Limit on Grants) Order 1982, which was laid before this House on 18th June, be approved.
The purpose of the draft order is to increase the limit on the aggregate amount of operating and deficit grants that the Secretary of State may pay to the coal industry. Under section 4 of the Coal Industry Act 1980, as amended by the Coal Industry Act 1982, the limit on the aggregate amount of those grants is £1,000 million, which may be increased by order to a maximum of £1,750 million.
Since the financial year 1979–80, deficit and operating grants amounting to £787 million have been paid cumulatively under the Coal Industry Act 1980, as amended by the 1982 Act, leaving £213 million available within the present limit. Further payments are scheduled for August and October, which would take the total of payments above this limit. The order would make available the further £750 million for which provision was made in the Act. That is intended to last until spring 1984.
The House may wonder why the order is needed so soon after the Coal Industry Act 1982 became law. We always recognised that the initial step in the Coal Industry Act 1982 from £590 million to £1,000 million was needed principally to complete grant payments in respect of 1981–82. This is reflected in my Department's Estimates for 1982–83, which are now before the House. As I said in answer to a question from my hon. Friend the Member for Edinburgh, South (Mr. Ancram) on 7 April, deferred operating and deficit grant of £198 million in respect of 1981–82 has been paid to the National Coal Board under the Act. Some £109 million of this was met from the Vote on account for Class IV, Vote 5, and for the remainder provision was made for a repayable advance from the Contingencies Fund pending parliamentary approval of the main Estimates.
It was always clear, therefore, that the order would need to be introduced before very long after the Act was passed, to keep grant payments on schedule during 1982–83.
I have explained that the £1,750 million available under the order is intended to last until the spring of 1984. The precise amounts that we intend to pay to the NCB in each financial year will be subject to parliamentary examination and approval in the Supply Estimates. Moreover, since new legislation on NCB grants and borrowing will be needed by the spring of 1984, Parliament will have a further opportunity fully to debate coal policy during the 1983–84 Session. In asking the House to give favourable consideration to an increase in the limit on operating and deficit grants payable to the NCB, I can give an assurance that the Government will monitor closely the board's performance. I and my colleagues intend to continue to keep the House informed of progress in coal policy.
In conclusion, there are few industries in Britain today with the potential and scope for improvement of the coal industry. But it is not the Government that will decide whether that challange is met and that opportunity seized. Only those in industry, working together, can assure their industry's future, their competitiveness and their jobs in the long term.

Mr. Alex Eadie: I should have wished to deal with the implications of the order in more detail. I first heard of the issues that were to be discussed by the NUM and th NCB on 24 June and it is not surprising that their meeting did not last for long. I attended the NUM conference at Inverness. In deference to the wishes of the House, 4.30 am on a Tuesday morning is hardly the time to go into detail. However, we should return to these matters because they are important to the coal industry and to those who work in it. I shall confine myself to the election of the president of the NUM, which has drawn much comment in the media.
Last week in Inverness I read a Scotsman editorial, which stated:
It is a strange world in which Mr. Scargill lives where everything is black and white, where negotiation is a sign of weakness, where strength is the arbiter and where concession becomes betrayal. Curiously, it is the world where the Prime Minister spends most of her time; indeed it could be argued that, because she has done so since she moved into Downing Street, she contributed to the sweeping victory Mr. Scargill enjoyed in the contest for the presidency of the NUM.
That conjecture may entertain observers of the social and political scene, but it is less pleasing to imagine the two of them bumping into each other. I quote that article mainly because some people, including Conservative Members, have made comments on the president. However, to put the matter in context, a delegate told me that, although the Prime Minister had contributed to the large majority of the new president, Arthur Scargill is determined to fight for his class and the Prime Minister is determined to fight for hers. I do not know what will happen as a consequence. Only the future can tell.
The Minister has explained the reasons for the Government introducing the order. It is not so long ago that Parliament approved the Coal Industry Act 1982. The order refers to section 4(3) of the Coal Industry Act 1980 that the Opposition will one day wish to amend. It is a disgraceful Act. Section 3 of the 1980 Act dealt with the aggregate of grants covering deficit grants. Section 8 of the Coal Industry Act 1973 referred to coking coal grants and sections 2 and 3 of the 1977 Act dealt with promoting sale of coal to the Central Electricity Generating Board and stocks of coal and coke. The amount was not to exceed £525 million or £590 million by subsequent order.
Under the 1982 Act, the figure of £525 million was replaced by £1,000 million, with extra headroom available by order up to a maximum of £1,750 million. The order presented by the Minister raises the grant limit from £1,000 million to £1,750 million. The grants paid by the Government to the National Coal Board are approaching the £1,000 million limit. To use the phrase I have already employed, the Government wish to secure some headroom before the Summer Recess.
The money made available will be sufficient until the spring of 1984. When hon. Members debated the 1982 measure, the Minister said that the Government intended to introduce further coal industry legislation at about that time. There will no doubt be the opportunity for a debate unless the Prime Minister is tempted to go to the country. There is a great deal of speculation about that matter. Although the Prime Minister has said that she would be astonished if the election were to take place in October, that does not prevent an election from being called in November.
The 1982 Act dealt with only one specific aspect of the order. It gave borrowing powers of £4,500 million, with the possibility that this could be raised by order to £5,000 million. I hope that the Minister can confirm that the board's borrowings are sufficiently below £4,500 million for the Government to be able to postpone raising the limit. It is necessary because there is much discussion about it.
I know that the Government have stated from time to time that the aid that they give to the industry is excellent. I have quarrelled with the Minister before on what I describe as "Thatcher's law", by which one gives an industry the powers to borrow money, but the interest that it pays on that money constitutes a subsidy. That is a new and astonishing feature that has developed in this Parliament. We have reached the stage where the coal industry is paying about £3 per ton of coal in interest. That is different from subsidy—the capital that it borrows to modernise industry, and has to pay interest on, could not possibly constitute a subsidy. Some of the Prime Minister's right hon. and hon. Friends have not yet explained to her when a subsidy is not a subsidy, and they even seem to back her in this.
As to the grants and aids given to the industry, the unions have always claimed that they are, to some extent, subjected to unfair competition when compared with the EEC countries. I took some figures from the report of the national conference of the NUM this year, which I wonder whether the Minister would care to comment on. The report puts the case succinctly and talks about the financial aid that other EEC countries give to their coal industries.
Under the section related to current production, I found that Belgium gave £152 million, France gave £218 million, West Germany gave £1,009 million and the United Kingdom £456 million. Translated to pounds per tonne, we find that in Belgium it works out at about £24·93, France £12·47, West Germany £10·78 and the United Kingdom, as usual at the bottom of the league, with £3·65 per tonne.
The figures not related to current production, which are figures that the House does not often get, show that Belgium gives £380 million, France £817 million, West Germany £1,550 million and the United Kingdom £72 million. I regret having to put these facts to the House, but there is a tremendous amount of distortion about aid and assistance, although we are grateful for what we get. Even with all that massive aid, we still produce coal more cheaply than any other country in the EEC.
There are two points to be made about the order, among the many issues concerning the industry. First, there is a feeling that the Government have driven the National Coal Board to accelerate its new developments in black site areas, rather than in green field sites. The Vale of Belvoir was the classic example of how the Government hampered green field site development. That was a national scandal. We know the investment that went into that area, and not a dish has been washed yet—to put it in the language of the Scottish miners. It cost the National Coal Board several million pounds. The board prepared the plan, and as a consequence of the announcement of the Secretary of State for the Environment, the board had to go back to the drawing board. More investment will be needed, more money will be spent, and still not a dish has been washed.
I do not criticise black site development. In fact, I have always encouraged it. Perhaps, in a sense, I even started it. My philosophy was to encourage the search for new


reserves in existing pits. However, black site developments will dry up, because coal mining is an extractive industry. Black site development and green field site development should go in tandem. I wonder whether the Department of Energy realises the injury that it is doing, not only to the coal industry but to the nation. The Government are driving the National Coal Board—I think, unwillingly—into concentrating on black site development.
Secondly, there is much anxiety in some coalfield areas that peripheral coalfield development is being practised and encouraged. The Minister has heard me say before that I tried to have the phrase peripheral coalfield development expunged from the thinking of the Department of Energy and, indeed, of the coal industry. It was mooted in the seventies that the coalfields of Scotland, South Wales, and those in the North-East in Durham, Northumberland and Cumberland should be contracted, and investment concentrated in what has been described as the centre.
I shall put a point to the Minister which, to some extent, justifies what I have said. It is a dangerous trend, which has caused dissatisfaction and anger in some coalfields. The latest investment figures show that 81 per cent. of investment was in what could probably be described broadly as the Yorkshire-Midlands coalfields. That means 19 per cent. investment for the other coalfields that I mentioned. If that is not a de facto policy of the peripheral coalfield development, I do not know what is. I hope that when the Minister winds up he will comment on that, because it has reached serious proportions. We are entitled to know the policy of the Department of Energy on coal production, not only on green field and black site development, but on where investment should be concentrated.
I have said for some time that, in discussing the coal industry, we are talking about the British coal industry. We are talking about the British coal industry and developing British coal, not about concentrating production in one or two areas. Coal is the nation's asset. Wherever coal lies, we have a responsibility to develop it.
I do not intend to oppose the order and I do not want to be churlish. We welcome any help, but because of the change in events we need a more detailed debate on the industry.

Mr. Tom Ellis: I do not wish to take up much time when we are all so tired, but in welcoming the order I wish to express some anxiety about the coal industry. I was a little worried about what the hon. Member for Midlothian (Mr. Eadie) said, because he seemed to indulge in special pleading. Enormous quantities of coal are stocked. The coal mountain makes the beef and butter mountains and the wine lake seem like nothing. About four months of coal is stocked ready for use.

Mr. Eadie: I hope that the hon. Gentleman is not saying that when I asked for investment in the industry in his area I was indulging in special pleading.

Mr. Ellis: I speak as the last of a long line. I am the only Welsh Member who was employed in the coal industry. I think of people such as Bevan, Griffiths and Dai Grenfell and I am conscious that I am part of a long and honourable tradition. I am sorry that I am the last, but I am worried about the coal industry in my area.
The reality is that coal stocks form the biggest mountain. We have four months' consumption in stocks and something must be done. We must accept reality and make the industry more competitive. That can be achieved by co-operation between trade unions, management and Government. The hon. Member for Midlothian did not stress the urgent need for that co-operation.
Part of the money to which the order applies is being used to produce coal burn artificially. Coal is to be burnt by the electricity industry which would not be burnt if left to commercial criteria. The industry should be able fully to use its capacity.
Most industries that produce above demand move to short-time working. Several factories in my constituency have had to do that recently. The coal industry is fortunate to be able fully to use its capacity. The people involved, including the president of the NUM, should appreciate that. Some of the president's recent actions are disconcerting. His first meeting with the chairman of the Coal Board was extraordinary. It was over in three minutes. When the chairman was asked whether the meeting was good tempered, he said that it was neither good tempered nor bad tempered because the meeting did not last long enough to have any temper.
In view of the coal industry's position, the president of the NUM should be doing his utmost to develop a close co-operation between his union and the industry with a view to putting the industry in a competitive position. I say that not to decry the claims of the NUM for increased wages for mine workers, because they are as entitled as anybody to that, but the recent increase in productivity in the coal industry was largely brought about in the face of the president's long resistance to the wage proposals that were eventually introduced. That does not seem to me to be facing up to reality.
I am not arguing that miners should be flogged to death for their earnings. The wages system in the coal industry is a difficult and subtle one. There is room, even now, for considerable refinement. I speak as somebody who, in the early 1960s, departed from the old system of what was then called the straightforward piece rate—partly piece rate and partly conceptual payments to make up for various deficiencies such as breakdowns, bad roofs, waterlog and so on—to put wages on a realistic basis.
The present wages system can be considered for the benefit of the mine workers, the industry and Britain. It is right that somebody should ask the president of the NUM to make clear his position and to show that he appreciates the fact that the coal industry has to live in the real world. We cannot subsidise it indefinitely.
One can argue that the industry has been partly maintained in its present position, rightly or wrongly—I am not making a value judgment—for political reasons. I would be the last to say that that should not be so. I was disappointed in what the hon. Gentleman said. We should try to face reality. I know that we cannot leave politics on one side, but we could buy coal from several sources in the world all with assured supplies and at considerably lower prices than we are paying for them. I simply record that as a fact and ask the president of the NUM and his colleagues to try to approach their jobs with the responsibility that that fact places upon them.

Mr. Frank Haynes: I honestly wish that the hon. Member for Wrexham (Mr. Ellis) had gone home and


gone to bed, bearing in mind what he has just said. It will not take me more than a few moments to say what I have to say.
The coal industry is competitive. The hon. Gentleman would not have spoken 12 months ago as he has done today. I am shocked at his contribution. Each time the mining industry and the people within it have been asked to make their contribution they have met that demand. I know that because I have worked in it, as the hon. Gentleman has, but he had a job in the office while I worked with a shovel. It is all right to chastise the president of the NUM—he has a job to do—but the hon. Gentleman forgets that decisions are made by the men, and not the president. He can make a recommendation, but in the final analysis the membership of the NUM makes the decision.
I remind the hon. Gentleman that the workers, the National Coal Board, and, as far as I know, the Government have always worked together in the interests of the nation. That is how it should be. I do not know where the hon. Gentleman has been, but most of what he was questioning we have debated in the House regularly, and agreed on many points concerning the mining industry. I did not want to speak, but I was drawn by the hon. Gentleman's contribution. The workers in the coal industry have pulled their socks up when they have been asked so to do. However, I must criticise the Government. The stocks are there because half of the industry has been closed. Nevertheless, the industry is competitive, the men are receiving their wages and the Government and nation are getting the output. That is why the coal is piling up. It is piling up just as much in the East Midlands as in Wrexham. Pits also close in that area. Most pits are breaking output records, yet we cannot sell the coal because industry does not want to buy it.
History will repeat itself. When the economy picks up and industry wants the coal, it will be gone. We shall be back in the same old situation. The miners will be called upon to increase productivity even further to meet the demand. Therefore, the hon. Member for Wrexham is wrong. The lads in the industry contribute whenever they are called upon. I am convinced that the new president of the NUM will give good leadership and that we shall all work together.

Mr. John Moore: With the leave of the House, I shall reply to the debate. I am sure that all hon. Members would like to spend a short time in bed. Therefore, I shall respond briefly to some of the points raised.
I reconfirm the figures mentioned by the hon. Member for Midlothian (Mr. Eadie). So far, £787 million has been paid cumulatively, leaving £213 million of the £1,000 million. Therefore, there will be more than enough for the autumn, but, as the hon. Gentleman rightly said, it would be wise to go to the full £1,750 million limit.
The hon. Gentleman also asked about the size of the borrowing limit. The provision in the 1982 Act enables it to be raised from £4,500 million to £5,000 million, by order. This is sufficient to meet its requirements until the financial year 1983–84. As of 18 June 1982, the board's borrowing was £3,292 million. As all hon. Members with an interest in the coal industry know, I share the desire to persuade the authorities to allow us to hold debates at more normal hours.
I turn to the hoary chestnut of foreign competition. This is not the time to go into the matter in detail, but in 1981 imports of British coal by France, West Germany and Belgium stood at 2·9 million tonnes, 1·8 million tonnes and 0·4 million tonnes—5·1 million tonnes in all. Yet the United Kingdom imported from these countries a total of only 100,000 tonnes. With the successful activities in our coal industry, we are exporting to countries whose subsidies go to stagnant or declining industries rather than to the developing and growing industries that we hope to see in this country. Unfortunately, I was unable to attend the NUM conference, because, for the first year out of four years, the invitation that has normally been extended to me was withdrawn. Obviously, I was saddened by that. I would have loved to attend, as I have done for the past three years. However, as I was unable to go, I cannot comment on the detailed points that have been raised.
I hope that all those interested will fight, not for a particular class, but for the success of our British coal industry. A successful coal industry will be achieved, as the new chairman of the coal industry, Norman Siddall, said at Inverness, by keeping the customers that we have and winning new customers. Surely, we should all be interested in that if we are interested in the future of coal. It is important to make the prices competitive and to get the coal to the new markets. I trust that the order, which increases the grant limits to the board, will help the board in that objective.

Question put and agreed to.

Resolved,
That the draft Coal Industry (Limit on Grants) Order 1982, which was laid before this House on 18th June, be approved.

STATUTORY INSTRUMENTS, &c.

Mr. Deputy Speaker (Mr. Ernest Armstrong): With permission, I shall put together the Questions on the Statutory Instruments.

Motion made, and Question put forthwith pursuant to Standing Order No. 73A (Standing Committee on Statutory Instruments, &amp;c.).

TOWN AND COUNTRY PLANNING

That the Town and Country Planning (Minerals) Regulations 1982, a copy of which was laid before this House on 15th June, be approved.

That the Town and Country Planning (Minerals) (Scotland) Regulations 1982, a copy of which was laid before this House on 16th June, be approved.

AGRICULTURE

That the draft Agriculture Act 1970 Amendment Regulations 1982, which were laid before this House on 21st May, be approved.

CUSTOMS AND EXCISE

That the draft Excise Duties (Deferred Payment) Regulations 1982, which were laid before this House on 8th June, be approved.—[Mr. Garel-Jones.]

Question agreed to.

EUROPEAN COMMUNITY DOCUMENTS

Motion made, and Question put forthwith pursuant to Standing Order No. 73B (Standing Committees on European Community documents).

COMMUNITY INFORMATION SYSTEMS

That this House takes note of European Community Document No. 8467/81, a Commission proposal to the Council for a decision relating to co-ordination of the activities of member states and Community institutions with a view to setting up a Community inter-institutional information system (INSIS) and the arrangements for the development of CADDIA (Co-operation in Automation of Data and Documentation on Imports, Exports and Agriculture) and supports the Government's intention to ensure that any implementation of the proposals is an effective use of Community resources.—[Mr. Garel-Jones.]

Question agreed to.

Job Creation

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones.]

Mr. D. N. Campbell-Savours: I wish to speak on a matter that is of interest to my constituents, and to ask the Government to consider certain courses of action. My constituents' interest derives from the high level of unemployment in my area and the belief that many unemployed people could be employed in the areas that I shall identify.
Unemployment in Great Britain has reached a disastrously high level. Everyone agrees that it is desirable to create more employment, but there is a dearth of practical ideas that would produce rapid results. One excellent way of producing more jobs is through energy conservation measures. A vigorous national home insulation programme similar to the gas conservation programme of the 1960s would reduce Great Britain's energy consumption by about 10 per cent. and energy consumption in the home by at least one-quarter.
According to calculations by Friends of the Earth, in their report "Earthworks", it would save householders over £2,000 million a year and create 14,000 jobs if implemented over the next 10 years. They would be direct jobs, involving the installation of insulation material, but the programme would generate a large amount of indirect and induced employment. Such employment would occur in the hard-pressed construction and insulation material industries. There are innumerable empty factories in my constituency where such products could be made.
As well as leading to a dispersal of jobs and income across the country, the employment gains would accrue mainly to low or unskilled workers, among whom employment is high in my constituency. Many installation jobs could be targeted to benefit young unemployed people, and several job creation projects, such as those run by Birmingham and Durham Friends of the Earth, have already shown what can be done. As well as creating thousands of jobs, such a programme would have the additional bonus of insulating the United Kingdom economy from shocks in the international oil market.
If we are to realise the full potential for energy conservation and job creation, there must be some Government involvement. The ACE report on energy conservation prepared by The Economist advisory group summed up the position as follows:
Although the returns to investment in domestic energy conservation are very great, there are a number of important disincentives to an adequate level of investment by individual householders. The householder is unable to recoup his investment if the house is sold. Conservation measures are much cheaper when carried out on a number of houses in an area as part of co-ordinated programme. Many of the indirect returns from conservation do not accrue to the household at all. Thus, the overall or social return from conservation is much greater than the return it yields to an individual household. There is thus, a need for a positive Government policy to subsidise investment in domestic conservation.
The Government's policy of relying virtually entirely on raising energy prices to bring about energy conservation is woefully inadequate. Low income groups, who spend proportionately more on energy and who are least able to adapt their consumption patterns, are hit hard by it. More significantly, it does not work.
The slight decline in energy consumption over the past few years has been primarily due to the recession and structural shifts in the economy, not conservation. In the domestic sector, householders have not responded to price rises and therefore the insulation industry runs well below capacity. A new approach to energy conservation is clearly urgently needed.
A more effective energy conservation policy boosting employment throughout the country need not involve massive increases in public expenditure. The necessary funds can be made available by rechannelling investment. Thousands of millions of pounds of Government money are invested in the energy supply industries every year. A large fraction of this should be reallocated because energy is simply a better investment. The rates of return on energy supply investment such as power stations tend to be low. The Treasury's test discount rate is 5 per cent., which translates into a pay-back time of about 20 years. Insulation measures have fast pay-back times of two to four years and they are particularly short if the insulating materials are bought in bulk.
The Government should be initiating insulation schemes for neighbourhoods of houses throughout the country. There are many possibilities, including efforts by local voluntary organisations, local authorities, building and insulating firms and the fuel industries. In the United States, the energy utilities have gone in for loan schemes to encourage conservation in a big way. As energy conservation is cheaper than building extra supply capacity, the utilities lend money to their customers to insulate their homes and then recoup the money by billing them for it. As the customers' fuel bills have been reduced, they can afford the repayments and everyone benefits.
The announcement by the Department of Energy last summer that it would provide grants for local authorities and local voluntary insulation schemes was a step in the right direction, but as the sum involved was a derisory £105,000—if that figure is wrong, I am sure that the Minister will correct me—it is hardly very meaningful. Will the Government instead embark on a vigorous home insulation programme to create much-needed employment in the declining construction and insulation material industries? I hope that the Minister will respond to that point.
Apart from employment, which would derive directly from a substantial commitment to energy conservation, I call the Government's attention to employment gains that would accrue from another socially and environmentally desirable course of action. It has been estimated that less than 1 per cent. of the transport supplementary grant for England alone would be sufficient to build and maintain a 6,000-mile cycle network for the whole country, creating 11,600 jobs over the next 30 years. For example, a recent report prepared for the Department of Transport by John Grimshaw and Associates calculated that an 18-mile disused railway track which lies partly in my constituency, between Keswick and Penrith in the Home Secretary's constituency could be converted to a cycle route for as little as £125,000, employing 40 people on Manpower Services Commission schemes for one year.
Is the Minister satisfied that the employment potential of creating cycle routes can be adequately realised if left to local initiative and voluntary groups, as recently advocated by the Under-Secretary of State for Transport?

Surely he cannot be. Although I realise that I have widened my topic somewhat and he may not be able to reply to that precise point, I hope that the Minister will indicate his general view.
The paper manufacturing industry is a major employer in my constituency and as yet we have not been hit directly by the job losses that have followed nationally from the decline in the industry, although a total investment of more than £80 million did not create as many jobs at Thames Board Mills as I should have liked.
The decline has, however, adversely affected local waste paper processors and a similar firm elsewhere in Cumbria has closed down. Nationally, 17 mills and 9,500 jobs were lost in 1980 and early 1981 alone.
In this context, I welcome the news that Her Majesty's Stationery Office is now using about 10 per cent. recycled paper. However, will the Government consider a more vigorous policy to revive the British paper industry by measures such as the following? There should be mandatory use of recycled waste paper products by local authorities and central Government institutions, especially HMSO. The lowering of spcification requirements for paper would also be a real incentive. Low interest loans and grants should be provided, especially to mills using recycled paper, for extensive investment in energy conservation. There should be the repeal of import duty legislation which permits newsprint to enter duty-free, and a renegotiation of newsprint import quotas into the EEC. Further, we need the dismantling of the EFTA agreements allowing Scandinavian paper imports to enter duty-free. The energy pricing arrangements for North American mills should be declared distortions of trade acting against, as I understand it, article 92 of the Treaty of Rome which—although it does not apply to United States producers—should influence our attitude to American internal pricing arrangements.
Loft insulation, paper recycling, cycleway construction and so on all reflect the positive contribution of an environmental approach, and show how environmental and economic well-being go hand in hand. Perhaps the Minister might consider sponsoring the creation of an energy conservation commission as proposed by the Select Committee on Energy in appendix 1 of the Committee's fift report. That idea is fully supported by John Adams, who is director-general of the British Paper and Board Industry Federation.
The policies that I suggest would yield thousands of jobs and would benefit mainly the low-skilled at a time when such workers are the main victims of the recession and of increasingly capital intensive technologies. In each case, induced employment effects would lead to many additional jobs being created. I am talking of a total well in excess of 50,000 jobs to be created and ask if the Government would recognise the heretofore largely unexplored employment potential of the environmental policies that I have described.
I should like to place on record my thanks to Mr. John Preedy of Friends of the Earth for the help that he gave me in compiling my speech. Such people are in the vanguard of action in conservation initiatives. I look forward to the day when their activities, such as the bottle plant in West Cumbria, can give way to the establishment of a national scheme sponsored by Government and fully supported by the Exchequer. Indeed, I hope that Minister will answer fully the points that I have made in my brief speech.

The Under-Secretary of State for Energy (Mr. David Mellor): I am grateful to the hon. Member for Workington (Mr. Campbell-Savours) for raising the important subject of energy conservation and for giving me notice of some of the arguments that he intended to adduce in the debate. I hope that will enable me to respond thoroughly to the points that he made and to deal with these important issues fully in the time available to me.
I assure the hon. Gentleman that the Government are concerned about employment opportunities. Our economic strategy is designed to secure and create real jobs. In our view, the prospects for long-term secure employment are inexorably linked to the success that we can achieve in making British industry efficient, competitive and profitable. Our energy policy must be viewed as part of our overall economic policy. Energy conservation, or, more aptly, the efficient use of energy, has a central and permanent place in our energy policy. Indeed, that must be so, because we are determined, almost above all else, to increase efficiency throughout the economy.
We have a comprehensive and effective programme to promote and support energy conservation through a combination of economic energy pricing, advice and information, incentive and regulation. We are convinced that the economic pricing of energy, reflecting the long-term costs of supply, must remain the key to the effectiveness of the programme as a whole. We reinforce this with a vigorous programme of information and advice designed to help both domestic and industrial consumers to respond intelligently to energy price signals. Those price signals reflect, as truly as circumstances allow, the underlying real cost of the energy consumed. That is vital, as many Governments throughout the Western world accept.
We also campaign to encourage awareness by householders of the need for conservation measures in their own homes. I have no hesitation in accepting the contention that significant Government financial assistance is in some cases appropriate—for example, if householders are to achieve a basic level of insulation in their dwellings.
Under the homes insulation scheme of the Department of the Environment, the Government have increased the level of grant allocations significantly over the past three years—at current prices, from £16·7 million in 1980–81 to £31·1 million in the current financial year—but we do not accept that there is a case for massive Government aid essentially to assist consumers to save their own money. Not only is such an approach wasteful of taxpayers' money; in some respects it is also counter-productive. I say that because it does nothing to encourage the consumer to appreciate the merits of energy efficiency, and it also fails to alter the traditional attitude to energy as a cheap resource, which I believe still underlies too much present thinking.
I should like to take up one or two of the specific matters that were raised. The hon. Gentleman claimed that the poor were hit unduly hard as a result of our policy on economic energy pricing. I cannot agree with him. After all, the Government are spending larger sums of public money than ever before each year in heating allowances specifically to help the poor—more than £250 million last year, to rise to more than £300 million this year.
As I shall say at greater length later, the poor and the disabled are especially catered for in our community energy projects, which are encouraged and supported by my Department and by other Government agencies, notably the Manpower Services Commission.
I must take the hon. Gentleman up on two points that he made about energy demand. He said that the present reduction in energy demand—

Mr. Campbell-Savours: The hon. Gentleman said that the poorer sections of the community were insulated. What about those who are in receipt of rent rebates, who are equally in an impoverished position? To what extent are they helped by the schemes if they are not drawing supplementary benefit?

Mr. Mellor: All householders qualify for a fairly significant level of support with their insulation, and the poor and the disabled qualify for a higher level of grant, which has been increased significantly over the past few years. The various insulation projects that are starting up in various city centre areas have their own rules about who can be assisted. We hope that about 50,000 poor consumers will have their lofts insulated this year by a combination of neighbourhood energy action projects, MSC manpower and Department of the Environment grants. In a scheme, for instance, that I saw in Fulham, an elderly lady can have four people insulating her flat for a full working day, and it costs her £4.
The hon. Gentleman suggested that the present reduction in energy demand had been due largely to the recession. There is much in that, and I do not deny it, but it is not right to say that all demand reduction is due to this factor. We have sought to analyse this matter. I have reason to believe that our pricing and energy conservation programmes taken together have reduced demand by 6 per cent. beyond what can be attributed to the economic downturn of recent years.
I must also challenge the hon. Gentleman's notion that switching public expenditure from investment in supply to conservation is the right approach. To begin with, as we have pointed out so often, the energy demand that is reduced by insulation—that is, space heating—is not the energy save by cutting out a new power station. That is electricity, which provides only 7 per cent. of domestic space heating.
Furthermore, the hon. Gentleman should not believe that total capacity is excessive. At the peak of last winter's heavy demand, there was only 2 per cent. of spare capacity. He will also be aware that the electricity supply industry's present programme of plant closures is somewhat controversial among some of his right hon. and hon. Friends.
Above all—and perhaps this is the most crucial aspect—it must be borne in mind that there is already evidence that people take at least half of the potential saving from insulation and other energy conservation measures in extra comfort. Thus, there is no easy relationship between energy conservation measures and a reduction in demand leading to a reduction in the need for capital expenditure on supply projects.
The hon. Gentleman suggests that a vigorous home insulation programme would create much needed employment in the declining construction and insulation materials industry. I accept that such investment in energy conservation could create jobs in carrying out the work,


although much will be done on a do-it-yourself basis and through increasing demand for conservation material and equipment. However, if one believes, as prudent people do, that there must be some link between what the Government spend and what they take in taxation, and when we are seeking to lighten the burden of taxation and not increase it, it must be clear that investment in energy conservation would have to displace spending elsewhere. If so, the overall implications for employment will depend on the employment intensiveness of the displaced spending. They could prove crucial.
We have seen no evidence to suggest that conservation investment is significantly more employment-intensive and hence more likely to create more new jobs than other kinds of employment. Nor do we see any reason to believe that direct employment creation by public authorities is likely to offer as good a long-term prospect for jobs as private sector provision within the right economic climate.
In my view, the real scope for the creation of new long-term employment opportunities as a result of increased energy efficiency lies especially in areas of new industries using new technologies, such as the development and application of microprocessors for control of energy use areas, to which we already offer a wide range of financial incentives. When I visit conservation establishments, functions and exhibitions, it is a great encouragement to me to see the number of small companies that are springing up throughout the country dealng with energy conservation technology. They are doing so in response to the clear demand that is developing throughout industry for these products.
As I was saying about the poor and disabled, we are equally mindful of the need to encourage temporary employment opportunities; and the voluntary homes insulation schemes referred to by the hon. Gentleman are a good illustration of such an initiative. Here my Department supports the efforts of local voluntary organisations undertaking schemes of practical home insulation work, mainly using the long-term unemployed under Manpower Services Commission schemes. These schemes and the Government's support for them helps to further a number of important objectives. First, these insulation schemes are intended primarily to benefit the elderly, the disabled and those on low incomes to whom voluntary community-based organisations have ready access. Secondly, they provide temporary employment opportunities for the long-term unemployed whose services are paid for by the Manpower Services Commission under the community enterprise programmes. Thirdly, the insulation work carried out is eligible for grant aid under the normal rules of the homes insulation scheme.
It is this interlocking of the three different methods of funding that gives a much higher figure than the one that the hon. Gentleman quoted. I cannot give him the exact figures offhand and they are not in my brief, but the MSC is putting several million pounds into the scheme for the labour and, in addition, there is the money that is obtained from the Department of the Environment under the homes insulation scheme. It is that which comes together to create the 50,000 homes that we hope will be insulated during the coming year just by the neighbourhood energy action schemes.
There are usually start-up costs for putting such schemes together, which though small in themselves often represent a significant burden on the resources of local voluntary organisations. It was because of that that the Department agreed last year to give preparatory and start-up grants to help the establishment of these schemes. They proved so successful that we have nearly doubled to over £200,000 the funds available for such grants in the current financial year. These are essentially seed corn grants. What matters is that they are available in sufficient quantities for these groups to get started. They do not need to be very large because once a group is going it can tap into the MSC and homes insulation scheme.
In doubling the provision that we made, we are reflecting the growth in these neighbourhood energy action schemes, which I very much welcome. Along with the National Council for Voluntary Organisations, I hope that I have played a part in stimulating interest in them. This "pump-priming" support is an effective way of achieving an objective that is shared by us all. To describe it as derisory is harsh, for the reasons that I have given. Such a charge also commits an elementary but common error of using the level of subsidy as the measure of the quality and effectiveness of our energy conservation programme. That is not the right approach because merely making money available is no guarantee of a worthwhile and beneficial programme.
I remind the House of one point. In no year since the homes insulation scheme began, under the Government and their predecessor, has the total allocated fund ever been spent up. We have improved the take-up rate in the past couple of years by dint of enormous efforts in more sophisticated communications techniques, culminating in our advertising campaign on Independent Television last winter.
I turn now to the hon. Gentleman's suggestions for Government aid to the paper industry. I know of his interest in that matter. I keep in touch with the paper and board industry. We recently dealt with the industry's energy costs in another Adjournment debate initiated by the hon. Member for Bury and Radcliffe (Mr. White).
The use of waste paper is already being encouraged and the amount of waste paper in United Kingdom-made paper products already compares favourably with that in other countries. Although we would not wish to make mandatory the use of recycled waste paper products, for customer choice is important and there are technical constraints on the use of waste paper for some paper grades, all other things being equal, HMSO already gives preference to suppliers whose products contain the largest percentage of recycled fibre.
A European Community recommendation on the recovery and re-use of waste paper and board, which came into operation last year, also follows a voluntary approach and officials at the Department of Industry are now liaising with representatives of the paper industry on ways to follow up this recommendation. Local authority representatives have also been contacted on ways to encourage the use of paper with a greater amount of recycled fibre through the alteration of their paper specifications.
The Import Duties Act 1932, which the hon. Gentleman mentioned, was repealed many years ago. There are no quotas for newsprint imports into the Community. Indeed,


with the Community's newsprint capacity being insufficient to meet Community demand, quotas would be counter-productive and harmful to the newspaper industry. Also, there are international treaty obligations to be taken into account. However, Community producers of newsprint, including United Kingdom producers, are given a measure of protection by the provisions of protocol 13 of our Treaty of Accession to the Community. That means that the amount of duty-free newsprint allowed to enter the Community is controlled by quotas which are agreed annually and which take into account the amount of Community newsprint production, including United Kingdom newsprint production, available.
The hon. Gentleman also suggested "dismantling" the community's trade agreements with the EFTA countries, which he said allow Scandinavian paper imports to enter duty-free. In fact, they do that only in part, and, besides, many of the Scandinavian imports that come duty-free do not compete with British production.
More important, the hon. Gentleman ignored the important benefits that we derive from those agreements.

They provide British industrial exports in return with almost completely duty-free access to the Scandinavian markets. The three countries concerned, Norway, Sweden and Finland, are valued trading partners. They take 6 per cent. of all British exports. I hope that the hon. Gentleman understands that it is for that reason that there can be no question of dismantling, denouncing or dishonouring our trade agreements with those countries.
I began by commending the notion of pursuing the synthesis of our environmental and economic goals. I fully accept that the creation of jobs, the implementation of energy conservation measures, the establishment of cycle routes, and the recycling of waste paper, are individually and collectively desirable. But they are not the only candidates clamouring—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, (MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-six minutes to Six o'clock am.